News Column

CAMPUS CREST COMMUNITIES, INC. - 10-K/A - Management's Discussion and Analysis of Financial Condition and Results of Operations.

June 23, 2014

As used herein, references to "we," "us," "our," the "Company" and "Campus Crest" refer to Campus Crest Communities, Inc. and our consolidated subsidiaries, including Campus Crest Communities Operating Partnership, LP (the "Operating Partnership"), except where the context otherwise requires.

Overview Our Company We are a self-managed, self-administered and vertically-integrated REIT focused on developing, building, owning and managing a diversified portfolio of high-quality, residence life focused student housing properties. We operate our business through the Operating Partnership and our subsidiaries. We derive substantially all of our revenue from student housing rental, student housing services, construction, development services and management services. As of December 31, 2013, we owned the sole general partnership interest, 99.3% of the outstanding common units of limited partnership interest in the Operating Partnership, or OP Units, and all of the outstanding preferred units of limited partnership interest in the Operating Partnership. We believe that we are one of the largest vertically-integrated developers, builders, owners and managers of high-quality, residence life focused student housing properties in the United States, based on beds owned and under management. As of December 31, 2013, we owned interests in 41 operating student housing The Grove® properties containing approximately 8,151 apartment units and 22,303 beds. Thirty-one of our operating The Grove®properties are wholly-owned and ten of our The Grove® properties are owned through joint ventures with HSRE. As of December 31, 2013, we also owned interests in 28 operating student housing Copper Beech branded properties containing approximately 5,047 apartment units and 13,177 beds. Our Copper Beech branded properties are owned by us and the CB Investors (see "- CB Portfolio Acquisition" below). As of December 31, 2013, we owned one wholly-owned redevelopment property. As of December 31, 2013, our operating portfolio consisted of the following: 44 Properties in Number Number Operation Ownership of Units of Beds Wholly owned Grove properties 31 100.0 % 6,065



16,571

Joint venture Grove properties: HSRE I 3 49.9 % 544 1,508 HSRE IV(1) 1 20.0 % 216 584 HSRE V 3 10.0 % 662 1,856 HSRE VI 3 20.0 % 664 1,784 Total Grove properties 41 8,151 22,303 CB Portfolio(2) 28 67.0 % 5,047 13,177 Total Portfolio(3) 69 13,198 35,480



(1) In January 2014, we acquired the outstanding interest in The Gove at Denton,

Texas.



(2) As of December 31, 2013, we held an effective interest in the CB Portfolio

of 67%.



(3) The re-development of our 100% owned property in Toledo, OH is excluded. We

expect to announce more details on the redevelopment in 2014. As of December 31, 2013, the average occupancy for our 41 operating The Grove® properties was approximately 90.1% and the average monthly total revenue per occupied bed was approximately $519. Our operating The Grove® properties are located in 19 states, contain modern apartment units with many resort-style amenities, and have an average age of approximately 3.7 years as of December 31, 2013. Our properties are primarily located in medium-sized college and university markets, which we define as markets located outside of major U.S. cities that have nearby schools generally with overall enrollment of approximately 5,000 to 20,000 students. We believe such markets are underserved and are generally experiencing enrollment growth. We have developed, built and managed substantially all of our wholly-owned properties and several of our unconsolidated, joint venture properties, which are based upon a common prototypical residential building design. We believe that our use of this prototypical building design, which we have built approximately 675 times (approximately 15 of such residential buildings make up one student housing property), allows us to efficiently deliver a uniform and proven student housing product in multiple markets. All of our operating properties (other than those in the CB Portfolio as defined below and Toledo) operate under The Grove® brand, and we believe that our brand and the associated lifestyle are effective differentiators that create higher visibility and appeal for our properties within their markets both with the student as well as the universities we serve. In addition to our existing properties, we actively seek organic growth opportunities. We commenced building or redeveloping nine new student housing properties in 2013, one of which is owned by a joint venture with HSRE and Brandywine in which we own a 30.0% interest and act as the co-developer, one of which is owned by a joint venture with Beaumont in which we owned a 20.0% interest at December 31, 2013, two of which are owned by a joint venture with HSRE in which we own a 30% interest, one of which is being built as a Copper Beech branded property in which our ownership interest is commensurate with the remainder of the CB Portfolio, and four of which are wholly-owned by us. In January 2014, we commenced redevelopment on one student housing property of which is owned by a joint venture with Beaumont in which we owned a 35.0% interest. The following is a summary of these developments: Estimated Scheduled Project Opening for Project Location Primary University Served Ownership Units Beds Cost (1) Occupancy Wholly Owned: The Grove at Slippery Rock Slippery Rock, PA Slippery Rock University 100.0 % 201 603 29.9 August 2014 The Grove at University of North Grand Forks Grand Forks, ND Dakota



100.0 % 224 600 28.2 August 2014 The Grove at Mt.

Central Michigan Pleasant Mt. Pleasant, MI University 100.0 % 216 584 24.1 August 2014 The Grove at Gainesville Gainesville, FL University of Florida 100.0 % 253 676 41.4 August 2014 Joint Venture: The Grove at University of North



GreensboroGreensboro, NC Carolina at Greensboro 30.0 % 216 584 27.9 August 2014 The Grove at LouisvilleLouisville, KYUniversity of Louisville 30.0 % 252 656 41.2 August 2014

University of evo at Cira Pennsylvania/ Drexel Centre South Philadelphia, PA University



30.0 % 344 850 158.5 August 2014 Copper Beech at Ames

Ames, IAIowa State University



67.0 % 219 660 33.6 August 2014 evo À

McGill University/ Station-Square Concordia University/ Victoria Montreal, Quebec L'Ecole de Technologie



20.0 % (2) 715 1,290 82.9 August 2014 evo À Sherbrooke Montreal, QuebecMcGill University

35.0 % (3) 488 952 83.5 August 2014

3,128 7,455 $ 551.2



--------------------------------------------------------------------------------

(1) Estimated project cost amounts are in millions.



(2) At December 31, 2013, our ownership percentage in CSH Montreal, the holding

company that owns our joint venture with Beaumont, DCV Holdings, was 20.0%.

Effective January 2014, with the closing of an additional property, our

ownership percentage increased to 35.0%. See Note 18 to the accompanying

consolidated financial statements. (3) Re-development property acquired by DCV Holdings on January 15, 2014. See Note 18 to the accompanying consolidated financial statements. 45 CB Portfolio Acquisition In February 2013, we entered into purchase and sale agreements to acquire an approximate 48.0% interest in a portfolio of 35 student housing properties, one undeveloped land parcel and a corporate office building held by the members of Copper Beech Townhome Communities, LLC ("CBTC") and Copper Beech Townhome Communities (PA), LLC ("CBTC PA," together with CBTC, "Copper Beech" or the "Sellers") (the "CB Portfolio"), and a fully integrated platform and brand with management, development and construction teams, for an initial purchase price of approximately $230.2 million, including the repayment of $106.7 million of debt. The remaining interests in the CB Portfolio are held by certain of the former members of CBTC and CBTC PA, (the "CB Investors"). Pursuant to our 48.0% interest in the CB Portfolio, we entered into a purchase and sale agreement (the "Purchase Agreement"), and related transactions, with the members of CBTC and CBTC PA, to acquire in steps a 36.3% interest in the CB Portfolio. We also entered into a purchase and sale agreement with certain investors in the CB Portfolio who are not members of Copper Beech (the "Non-Member Investors") to acquire the interests in the CB Portfolio held by such Non-Member Investors (the "Non-Member Purchase Agreement"). Pursuant to the Non-Member Purchase Agreement, we acquired approximately an 11.7% interest in the CB Portfolio from the Non-Member Investors. We refer to this transaction as the "CB Portfolio Acquisition." Our $230.2 million investment in the CB Portfolio entitles us to a preferred payment of $13.0 million for the first year of our investment and 48.0% of remaining operating cash flows. Operating cash flows, as defined in the operating agreements governing the properties comprising the CB Portfolio, is all cash revenues received reduced by cash expenditures for operating expenses, principal and interest payments on loans and other borrowed money, capital expenditures and reserves for working capital purposes. In connection with the CB Portfolio Acquisition we loaned approximately $31.7 million to the CB Investors. The loan had an interest rate of 8.5% per annum and a term of three years, and was secured by the CB Investors' interests in six unencumbered properties in the CB Portfolio. This amount was repaid by year end. See below for further discussion. For the year ended December 31, 2013, we recognized approximately ($3.8) million in equity in loss of Copper Beech and approximately $1.4 million in interest income from the loan to the CB Investors. Additionally, for the year ended December 31, 2013, we recognized approximately $1.1 million of transaction expenses related to the CB Portfolio Acquisition and incurred $16.9 million of costs which were included in our investment basis in the CB Portfolio. During the period from March 18, 2013 to December 31, 2013, the CB Portfolio had net cash provided by operating activities of approximately $16.4 million, net cash used in investing activities of approximately $24.2 million and net cash provided by financing activities of approximately $9.1 million.



Amendment to Copper Beech Purchase Agreement

On September 30, 2013 and effective subject to the receipt of required third party consents, we entered into an Amendment (the "Amendment") to the Purchase Agreement. As consideration for entering into the Amendment, we paid the CB Investors$4.0 million. Pursuant to the terms of the Amendment, following receipt of required third party consents, we will transfer our 48.0% interest in five properties in the Copper Beech Portfolio (Copper Beech Auburn, Copper Beech Kalamazoo Phase 1, Copper Beech Kalamazoo Phase 2, Copper Beech Oak Hill and Copper Beech Statesboro Phase 1) back to the CB Investors and defer the acquisition of two development properties (Cooper Beech Mt. Pleasant Phase 2 and Cooper Beech Statesboro Phase 2) until August 18, 2014 as consideration for an additional 19.0% interest in each of the remaining 30 properties in the Copper Beech Portfolio (the "Initial Copper Beech Properties"). Following the transfer of such properties, we will hold a 67.0% interest in each of 30 properties in the CB Portfolio, with the CB Investors holding the remaining 33.0% interest. In addition, under the terms of the Amendment, we have the option, exercisable from March 18, 2014 through August 18, 2014, to acquire an 18.0% interest in each of the seven properties whose acquisition is being deferred (collectively, the "Deferred Copper Beech Properties"), which will entitle us to 33.0% of the operating cash flows of such Deferred Copper Beech Properties. The purchase price for the exercise of this option is approximately $16.9 million. In order to exercise this option, we must also exercise the option to acquire an additional 18.0% interest in the Initial Copper Beech Properties, which is described below.



Both we and the CB Investors hold joint approval rights for major decisions, including those regarding property acquisition and disposition as well as property operation. As such, we hold a noncontrolling interest in the CB Portfolio and accordingly apply the equity method of accounting.

The Amendment also amends our options, but not obligations, to acquire additional interests in the Copper Beech Portfolio as follows:

• Beginning March 18, 2014 through August 18, 2014, we have the option to

acquire an additional 18.0% interest in the Initial Copper Beech Properties,

increasing our aggregate interest in such properties to 85.0%, which will

entitle us to 100% of the operating cash flows of the Initial Copper Beech

Properties. The aggregate purchase price for the exercise of this purchase

option is approximately $93.5 million plus debt repayment of approximately

$21.0 million.



• Through May 2015, we have the option to acquire an additional 3.9% interest in

the Initial Copper Beech Properties and an additional 70.9% interest in the

Deferred Copper Beech Properties, increasing our aggregate interest in all 37

properties in the Copper Beech Portfolio to 88.9%, which will entitle us to

100% of the operating cash flows of the Initial Copper Beech Properties and

the Deferred Copper Beech Properties. The aggregate purchase price for the

exercise of this purchase option is approximately $100.7 million plus debt

repayment of approximately$19.0 million.



• Through May 2016, we have the option to acquire an additional 11.1% interest

in the Copper Beech Portfolio, increasing our aggregate interest to 100%. The

aggregate purchase price for the exercise of this purchase option is approximately $53.4 million. 46

If we elect to exercise any of the purchase options, we are not obligated to exercise any subsequent purchase options. In the event we do not elect to exercise a purchase option, we will lose the right to exercise future purchase options. If the first purchase option is not exercised, we will be entitled to a 48.0% interest in all 37 properties in the CB Portfolio and will be entitled to 48.0% of operating cash flows and 45.0% of the proceeds of any sale of any portion of the CB Portfolio. If the first purchase option is exercised but the second purchase option is not exercised, we will be entitled to a 75.0% interest in all 37 properties in the CB Portfolio and will be entitled to 75.0% of operating cash flows and 70.0% of the proceeds of any sale of any portion of the CB Portfolio. If the second purchase option is exercised but the third purchase option is not exercised, we will retain our 88.9% interest in the CB Portfolio and will be entitled to 88.9% of both operating cash flows and the proceeds of any sale of any portion of the CB Portfolio.



In connection with the Amendment, the Sellers repaid the entire principal balance of $31.7 million outstanding under the loans previously provided by us.

The CB Portfolio consists of 35 student housing properties, one undeveloped land parcel in Charlotte, North Carolina, and Copper Beech's corporate office building in State College, Pennsylvania. The CB Portfolio consists primarily of townhouse units located in eighteen geographic markets in the United States across thirteen states, with 30 of the 35 student housing properties having been developed by Copper Beech. As of December 31, 2013, the CB Portfolio comprised approximately 5,047 rentable units with approximately 13,177 rentable beds. The CB Portfolio student housing properties have an average age of approximately 8.5 years. As of December 31, 2013, the average occupancy for the student housing properties was approximately 96.1%. For the year ended December 31, 2013, the average monthly total revenue per occupied bed was approximately $493. 47



The following table presents certain summary information about the properties in the CB Portfolio:

Initial Copper Beech Properties Primary University Units Beds Copper Beech I-State College Penn State University 59 177 Copper Beech II-State College Penn State University 87 257 Oakwood--State College Penn State University 48 144 Northbrook Greens-State College Penn State University 166 250 Parkway Plaza-State College Penn State University 429 633 Indiana University of IUP Phase I-Indiana Pennsylvania 95 239 Indiana University of IUP Phase II-Indiana Pennsylvania 72 172 Indiana University of IUP Buy-Indiana Pennsylvania 43 74 Radford, VA Radford University 222 500 Klondike-Purdue Purdue University 219 486 Baywater-Purdue Purdue University 137 488 Bloomington, IN Indiana University 107 297 CMU Phase I-Mount Pleasant, MI Central Michigan University 204 632 California State University Fresno, CA at Fresno 178 506 Bowling Green Phase I Bowling Green University 128 400 Bowling Green Phase II Bowling Green University 72 216 Grand Valley State Allendale Phase I University 206 614 Grand Valley State Allendale Phase II University 82 290 Columbia, MO University of Missouri 214 654 Colonial Crest-Bloomington, IN Indiana University 206 402 Columbia, SC Phase I University of South Carolina 278 824 Columbia, SC Phase II University of South Carolina 72 178 Morgantown, WV West Virginia University 335 920 Harrisonburg, VA James Madison University 414 1,218 Grand Duke James Madison University 120 124 Greenville, NC East Carolina University 439 1,232 San Marcos, TX Phase I Texas State University 273 840 San Marcos, TX Phase II Texas State University 142 410 Total - Initial Copper Beech Properties 5,047 13,177 Deferred Copper Beech Properties Primary University Units



Beds

Oak Hill-State College Penn State University 106 318 CMU Phase II-Mount Pleasant, MI Central Michigan University 119 256 Statesboro, GA Phase I Georgia Southern University 246 754 Statesboro, GA Phase II Georgia Southern University 82 262 Kalamazoo Phase I Western Michigan University 256 784 Kalamazoo Phase II Western Michigan University 115 340 Auburn, AL Auburn University 271 754 Total - Deferred Copper Beech Properties 1,195 3,468 It is the Company's intention to exercise the purchase options; however, the Company does not intend to exercise the purchase options on the terms set forth in the Amendment to the Purchase Agreement. The Company is currently in discussions with the Sellers regarding an amendment to the terms of each of the purchase options; however, there can be no assurance that the Company will be able to renegotiate the purchase options on terms sufficiently favorable to the Company to allow for the exercise of the purchase options. Therefore, there can be no assurance with respect to the timing of the exercise of any of the purchase options. Our Relationship With HSRE We are a party to active joint venture arrangements with HSRE, a real estate private equity firm founded in 2005 that has significant real estate asset holdings, including student housing properties, senior housing/assisted living units, self-storage units, boat storage facilities and medical office space. As of December 31, 2013, we hold 10 operating joint venture properties with HSRE and are in the process of developing three additional properties in partnership with HSRE, including one joint venture project where we are partners with both HSRE and Brandywine. HSRE I. Our first joint venture with HSRE, HSRE-Campus Crest I, LLC ("HSRE I"), indirectly owned 100% of the interests in the following three properties at December 31, 20103: The Grove at Conway, Arkansas, The Grove at Lawrence, Kansas, and The Grove at San Angelo, Texas. On July 5, 2012, we completed the purchase of HSRE's 50.1% interest in The Grove at Moscow, Idaho, which was included in HSRE I prior to that date. On December 29, 2011, we completed the purchase of HSRE's 50.1% interests in The Grove at Huntsville, Texas and The Grove at Statesboro, Georgia, which were included in HSRE I prior to that date. At December 31, 2013, we owned a 49.9% interest in HSRE I and HSRE owned the remaining 50.1%. In general, we are responsible for the day-to-day management of HSRE I's business and affairs, provided that major decisions must be approved by us and HSRE. In addition to distributions to which we are entitled as an investor in HSRE I, we receive or have in the past received fees for providing services to the properties held by HSRE I pursuant to development and construction agreements and property management agreements. We granted to an entity related to HSRE I a right of first opportunity with respect to certain development or acquisition opportunities identified by us. This right of first opportunity was to terminate at such time as HSRE had provided at least $40 million of equity funding to HSRE I and/or certain related ventures. This right of first opportunity was amended in conjunction with the formation of HSRE IV as discussed below. HSRE I will dissolve upon the disposition of substantially all of its assets or the occurrence of certain events specified in the agreement between us and HSRE. 48 HSRE IV. In January 2011, we entered into a joint venture with HSRE, HSRE-Campus Crest IV, LLC ("HSRE IV") to develop and operate additional purpose-built student housing properties. HSRE IV completed two new student housing properties in August 2011 for the 2011-2012 academic year. The properties, located in Denton, Texas, and Valdosta, Georgia, contain an aggregate of approximately 1,168 beds and cost approximately $45.7 million. We own a 20.0% interest in this venture and affiliates of HSRE own the balance. On July 5, 2012, we completed the purchase of HSRE's 80% interest in The Grove at Valdosta, which was included in HSRE IV prior to that date. HSRE V. In October 2011, we entered into a joint venture with HSRE, HSRE-Campus Crest V, LLC ("HSRE V"), to develop and operate additional purpose-built student housing properties. HSRE V completed three new student housing properties in August 2012 for the 2012-2013 academic year. The properties, located in Fayetteville, Arkansas, Laramie, Wyoming, and Stillwater, Oklahoma, contain an aggregate of approximately 1,856 beds and cost approximately $72.1 million. We own a 10% interest in this venture and affiliates of HSRE own the balance.



HSRE VI. In March 2012, we entered into a joint venture with HSRE, HSRE-Campus Crest VI, LLC ("HSRE VI"), to develop and operate additional purpose-built student housing properties. HSRE VI completed three new student housing properties in August 2013 for the 2013-2014 academic year. The properties, located in Norman, Oklahoma, State College, Pennsylvania and Indiana, Pennsylvania, contain an aggregate of approximately 1,784 beds and cost approximately $80.0 million. We own a 20.0% interest in this venture and affiliates of HSRE own the balance.

In general, we are responsible for the day-to-day management of HSRE IV's, HSRE V's and HSRE VI's business and affairs, provided that major decisions (including deciding to pursue a particular development opportunity) must be approved by us and HSRE. In addition to distributions to which we are entitled as an investor in HSRE IV, HSRE V and HSRE VI, we will receive fees for providing services to HSRE IV, HSRE V and HSRE VI pursuant to development and construction agreements and property management agreements. In general, we will earn development fees equal to approximately 4.0% of the total cost of each property developed by HSRE IV, HSRE V and HSRE VI (excluding the cost of land and financing costs), construction fees equal to approximately 5.0% of the construction costs of each property developed by HSRE IV, HSRE V and HSRE VI and management fees equal to approximately 3.0% of the gross revenues and 3.0% of the net operating income of operating properties held by HSRE IV, HSRE V and HSRE VI. In addition, we will receive a reimbursement of a portion of our overhead relating to each development project at a negotiated rate. Under certain circumstances, we will be responsible for funding the amount by which actual development costs for a project pursued by HSRE IV, HSRE V or HSRE VI exceed the budgeted development costs of such project (without any increase in our interest in the project), which could materially and adversely affect the fee income realized from any such project. HSRE IX. In January 2013, we entered into a joint venture with HSRE and Brandywine, HSRE-Campus Crest IX, LLC ("HSRE IX"), to develop and operate additional purpose-built student housing properties. HSRE IX is currently building one new student housing property, evo at Cira Centre South, with completion targeted for the 2014-2015 academic year. The property, located in the University City submarket of Philadelphia, Pennsylvania, will contain approximately 850 beds and has an estimated cost of approximately $158.5 million. We own a 30.0% interest in this venture, Brandywine owns 30.0% and affiliates of HSRE own the balance. In general, we, along with Brandywine, are responsible for the day-to-day management of HSRE IX's business and affairs, provided that major decisions (including deciding to pursue a particular development opportunity) must be approved by us, HSRE, and Brandywine. In addition to distributions to which we are entitled as an investor in HSRE IX, we, along with Brandywine, will receive fees for providing services to HSRE IX pursuant to a development agreement and property management agreement. In general, we, along with Brandywine, will earn development fees equal to approximately 4.0% of the total cost of each property developed by HSRE IX (excluding the cost of land and financing costs) and we will earn management fees equal to approximately 3.0% of the gross revenues and 2.0% of the net operating income of operating properties held by HSRE IX. In addition, we, along with Brandywine, will receive a reimbursement of a portion of our overhead relating to each development project at a negotiated rate. Under certain circumstances, we, along with Brandywine, will be responsible for funding the amount by which actual development costs for a project pursued by HSRE IX exceed the budgeted development costs of such project (without any increase in our interest in the project), which could materially and adversely affect the fee income realized from any such project. HSRE X. In March 2013, we entered into a joint venture agreement with HSRE, HSRE-Campus Crest X, LLC ("HSRE X"), to develop and operate additional purpose-built student housing properties. HSRE X is developing two new student housing properties with completion targeted for the 2014-2015 academic year. The properties, located in Louisville, Kentucky and Greensboro, North Carolina will contain an aggregate of approximately 1,238 beds and have an estimated cost of approximately $69.1 million. We own a 30.0% interest in this joint venture and affiliates of HSRE own the balance. 49 We amended HSRE's right of first opportunity, originally granted with respect to HSRE I, to develop all future student housing development opportunities identified by us that are funded in part with equity investments by parties unaffiliated with us, until such time as affiliates of HSRE have invested an aggregate $50 million in HSRE IV, HSRE V, HSRE VI, HSRE IX, and HSRE X or caused HSRE IV, HSRE V, HSRE VI, HSRE IX, and HSRE X to decline three development opportunities in any calendar year. As of December 31, 2013, HSRE had funded approximately all of the $50 million right of first opportunity. The terms of this joint venture do not prohibit us from developing a wholly-owned student housing property for our own account.



Our Relationship With Beaumont

In July 2013, we entered into a joint venture, DCV Holdings, LP ("DCV Holdings") with Beaumont Partners SA ("Beaumont") to acquire a 711 room, 33-story hotel in downtown Montreal, Quebec, Canada, for approximately $60.0 million Canadian ("CAD"). The joint venture intends to convert the property into an upscale student housing tower featuring a mix of single and double units serving McGill University, Concordia University and L'Ecole de Technologie. In December 2013, we and Beaumont formed a holding company, CSH Montreal LP ("CSH Montreal"), and DCV Holdings was subsequently contributed to CSH Montreal LP, such that CSH Montreal LP became the sole limited partner in DCV Holdings. In addition, following the insertion of CSH Montreal LP as the holding company in the joint venture arrangement, CSH Montreal LP acquired ownership of HIM Holdings LP ("HIM Holdings"), an entity formed to facilitate the acquisition of another property in Canada. As of December 31, 2013, we owned a 20.0% interest in DCV Holdings. On January 15, 2014, through the newly formed HIM Holdings, the joint venture partnership acquired the 488-room, 22-story Holiday Inn Midtown in MontrÉal, QuÉbec for approximately CAD 65 million. The joint venture intends to convert the property it into an upscale evo student housing tower near McGill University. In connection with the acquisition of the Holiday Inn property, we increased our ownership interest from 20.0% to 35.0% in CSH Montreal, the joint venture that holds the newest evo and the previously announced evo À Square Victoria.



Critical Accounting Policies

Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. Certain of these accounting policies are particularly important for an understanding of the financial position and results of operations presented in the consolidated financial statements set forth elsewhere in this report. These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Actual results could differ as a result of such judgment and assumptions. Our consolidated financial statements include the accounts of all investments, which include joint ventures in which we have a controlling interest and our consolidated subsidiaries. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in our historical 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 historical consolidated financial statements, giving due consideration to materiality. Our estimates may not be ultimately 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 may 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.



Valuation of Investment in Real Estate

Investment in real estate is recorded at historical cost. Pre-development expenditures include items such as entitlement costs, architectural fees and deposits associated with the pursuit of partially-owned and wholly-owned development projects. These costs are capitalized until such time that management believes it is no longer probable that a contract will be executed and/or construction will commence. Management evaluates the status of projects where we have not yet acquired the target property or where we have not yet commenced construction on a periodic basis and writes off any pre-development costs related to projects whose current status indicates the commencement of construction is not probable. Such write-offs are included within development, construction, and management services in the accompanying consolidated statements of operations. Management assesses whether there has been impairment in the value of our investment in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of investment in real estate is assessed by a comparison of the carrying amount of a student housing property to the estimated future undiscounted cash flows expected to be generated by the property. Impairment is recognized when estimated future undiscounted cash flows are less than the carrying value of the property. The estimation of expected future undiscounted cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions. If such conditions change, then an adjustment reducing the carrying value of our long-lived assets could occur in the future period in which 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 operating earnings. Fair value is determined based upon the discounted cash flows of the property, quoted market prices or independent appraisals, as considered necessary.



Investment in Unconsolidated Entities

Under the equity method, investments in unconsolidated entities are initially recognized in the balance sheet at cost and are subsequently adjusted to reflect our proportionate share of net earnings or losses of the entity, distributions received, contributions, and certain other adjustments, as appropriate. Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings (loss) of unconsolidated entities. When circumstances indicate there may have been a loss in value of an equity method investment, and we determine the loss in value is other than temporary, we recognize an impairment charge to reflect the investment at fair value. 50



Development, Construction and Management Services

Development and construction service revenue is recognized using the percentage of completion method, as determined by construction costs incurred relative to total estimated construction costs. Any changes in significant judgments and/or estimates used in determining construction and development revenue could significantly change the timing or amount of construction and development revenue recognized. Development and construction service revenues are recognized for contracts with entities we do not consolidate. For projects where revenue is based on a fixed price, any cost overruns incurred during construction, as compared to the original budget, will reduce the net profit ultimately recognized on those projects. Profit derived from these projects is eliminated to the extent of our interest in the unconsolidated entity. Any incentive fees, net of the impact of our ownership interest, are recognized when the project is complete and performance has been agreed upon by all parties, or when performance has been verified by an independent third party. When total development or construction costs at completion exceed the fixed price set forth within the related contract, such cost overruns are recorded as additional investment in the unconsolidated entity to the extent these amounts are determined to be realizable. Entitlement fees, where applicable, are recognized when earned based on the terms of the related contract.



Allowance for Doubtful Accounts

Allowances for student receivables are established when management determines that collections of such receivables are doubtful. Balances are considered past due when payment is not received on the contractual due date. When management has determined receivables are uncollectible, they are written off against the allowance for doubtful accounts.



Fair Value of Financial Instruments

The carrying value of cash, cash equivalents, restricted cash, student receivables and accounts payable are representative of their respective fair values due to the short-term nature of these instruments. The estimated fair value of our revolving line of credit approximates the outstanding balance due to the frequent market based re-pricing of the underlying variable rate index. The estimated fair values of mortgages and construction loans are determined by comparing current borrowing rates and risk spreads offered in the market to the stated interest rates and spreads on our current mortgages, construction loans, and Exchangeable Senior Notes. Fair value guidance for financial assets and liabilities that are recognized and disclosed in the consolidated financial statements on a recurring basis and nonfinancial assets on a nonrecurring basis establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:



Level 1 - Observable inputs, such as quoted prices in active markets at the

measurement date for identical, unrestricted assets or



liabilities.

Level 2 - Other inputs that are observable directly or indirectly, such as quoted

prices in markets that are not active or inputs which are



observable,

either directly or indirectly, for substantially the full term



of the

asset or liability.



Level 3 - Unobservable inputs for which there is little or no market data and

which we make our own assumptions about how market



participants would

price the asset or liability. Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In instances where inputs used to measure fair value 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. Our 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. Income Taxes We have made an election to qualify, and believe we are operating so as to qualify, as a REIT under Sections 856 through 859 of the Internal Revenue Code. Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our stock. We believe that we are organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT. As a REIT, we generally will not be subject to U.S. federal and state income tax on taxable income that we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and generally will be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification. Accordingly, our failure to qualify as a REIT could materially and adversely affect us, including our ability to make distributions to our stockholders in the future. 51 We have made the election to treat TRS Holdings, our wholly-owned subsidiary as a TRS. TRS Holdings holds our development, construction and management companies that provide services to entities in which we do not own 100% of the equity interests. As a TRS, the operations of TRS Holdings and its subsidiaries are generally subject to federal, state and local income and franchise taxes. Our TRS accounts for its income taxes in accordance with U.S. GAAP, which includes an estimate of the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred tax assets and liabilities of the TRS entities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. 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. We follow a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when we conclude that a tax position, based solely on its technical merits, is more-likely-than-not (a likelihood of more than 50 percent) to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when we subsequently determined that a tax position no longer met the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited. Property Acquisitions We allocate the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values. Fair value estimates are based on information obtained from independent appraisals, other market data, information obtained during due diligence and information related to the marketing and leasing at the specific property. The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued "as-if" vacant. As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates. Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy and costs to execute similar leases. Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, net of variable operating expenses. The value of in-place leases is amortized over the remaining initial term of the respective leases, generally less than one year. The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of renewals. Acquisition-related costs such as due diligence, legal and accounting fees are expensed as incurred and not applied in determining the fair value of an acquired property.



Changes in Financial Condition

In January 2013, we entered into the second amended and restated credit agreement (the "Second Amended and Restated Credit Agreement"), which provides for a $250 million senior unsecured revolving credit facility (the "Revolving Credit Facility"), a $50 million term loan (the "Term Loan", together with the "Revolving Credit Facility", the "Amended Credit Facility"), and an accordion feature that allows us, under certain circumstances, to request an increase in the total commitments by an additional $300.0 million, increasing total commitments to $600.0 million. The Second Amended and Restated Credit Facility will mature in January 2017 and contains a one-year extension option, subject to certain terms and conditions. For additional information regarding the Amended Credit Facility, please refer to "-Liquidity and Capital Resources-Principal Capital Resources" below. In March 2013, we completed an underwritten public offering of approximately 25.5 million shares of common stock, including approximately 3.3 million shares issued and sold pursuant to the full exercise of the underwriters' option to purchase additional shares, resulting in net proceeds of approximately $299.7 million. The net proceeds were used: (1) to fund our investment in the CB Portfolio and related transactional costs, including investment banking advisory fees (see Note 5 to the accompanying consolidated financial statements); and (2) for general corporate purposes, including the repayment of debt. In June 2013, we implemented an At-The-Market offering program under which we may sell at market price up to $100.0 million in shares of our common stock over the term of the program. As of December 31, 2013, we had not issued and sold any shares under this program. In October 2013, we reopened our Series A Preferred Stock in an underwritten public offering of 3,800,000 shares, including 400,000 shares issued and sold pursuant to the partial exercise of the underwriters' option to purchase additional shares of the Series A Preferred Stock. The shares of Series A Preferred Stock were issued at a public offering price of $25.0611 per share, for net proceeds of approximately $91.3 million, after deducting the underwriting discount and other estimated offering expenses of approximately $4.0 million. We used the net proceeds, as well as the net proceeds from our issuance of Exchangeable Senior Notes (defined below), to repay approximately $46.8 million of indebtedness outstanding under three construction loans, to repay amounts owed under the Amended Credit Facility and for general corporate purposes. 52 In October 2013, the Operating Partnership completed a private offering of $100.0 million of unsecured 4.75% exchangeable senior notes (the "Exchangeable Senior Notes") due October 15, 2018. Interest on the Exchangeable Senior Notes is payable semi-annually on April 15 and October 15, beginning April 15, 2014. Upon exchange of the notes, the Operating Partnership will deliver cash, shares of Campus Crest common stock, or a combination of both at an initial exchange rate of 79.6020 shares per $1,000 principal amount of Exchangeable Senior Notes (equivalent to an initial exchange price of approximately $12.56 per share of our common stock). The Exchangeable Senior Notes may not be redeemed prior to the maturity date. At any time prior to July 15, 2018, the Operating Partnership may irrevocably elect, in its sole discretion without the consent of the holders of the notes, to settle all of its future exchange obligation entirely in shares of our common stock. The Exchangeable Senior Notes rank equally in right of payment to all other unsecured debt and are subordinated in right of payment to all secured debt, liabilities, and preferred equity of our subsidiaries. We used the net proceeds from the reopening of the Series A Preferred Stock and the Exchangeable Senior Notes offerings for the repayment of debt, development funding and working capital purposes.



REIT Qualification Requirements

We have elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code. Our continued qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our stock. We believe that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT. As a REIT, we generally will not be subject to U.S. federal income tax on taxable income that we distribute currently to our stockholders.



Factors Expected to Affect Our Operating Results

Unique Leasing Characteristics

Student housing properties are typically leased by the bed on an individual lease liability basis, unlike multi-family housing where leasing is by the unit. Individual lease liability limits each student-tenant's liability to his or her own rent without liability for a roommate's rent. A parent or guardian is required to execute each lease as a guarantor unless the student-tenant provides adequate proof of income. The number of lease contracts that we administer is therefore equivalent to the number of beds occupied rather than the number of units. Due to our predominantly private bedroom accommodations, the high level of student-oriented amenities offered at our properties and the individual lease liability for our student-tenants and their parents, we believe that we typically command higher per-unit and per-square foot rental rates than many multi-family properties located in the markets in which we operate. We are also typically able to charge higher rental rates than on-campus student housing, which generally offers fewer amenities. Unlike traditional multi-family housing, most of our leases commence on the same date. In the case of our typical 11.5-month leases (which provide for 12 equal monthly payments), this date coincides with the commencement of the fall academic term and typically terminates at the completion of the last summer school session. As such, we must re-lease each property in its entirety each year, resulting in significant turnover in our tenant population from year to year. As a result, we are highly dependent upon the effectiveness of our marketing and leasing efforts. As of the start of the fall term for the 2013-2014 and 2012-2013 academic years, we had approximately 41.7% and 41.9%, respectively, of our current tenants renew their lease for the upcoming academic year.



Development, Construction and Management Services

The amount and timing of revenues from development, construction and management services will typically be contingent upon the number and size of development projects that we are able to successfully structure and finance in our current and future unconsolidated joint ventures. In particular, we entered into joint ventures HSRE IX, HSRE X, and DCV Holdings that are currently building five student housing properties with completion targeted for the 2014-2015 academic year. We will receive fees for providing development and construction services to HSRE X and receive management fees for managing properties owned by HSRE X once they are placed in service. We will share in the receipt of fees for providing development services to DCV Holdings and receive management fees for managing properties owned by DCV Holdings once they are placed in service. We will share in the receipt of fees for providing development services to HSRE IX and share in the receipt of management fees for managing the property owned by HSRE IX once it is placed in service. No assurance can be given that the aforementioned joint ventures will be successful in developing student housing properties as currently contemplated or those currently under construction. Results of Operations Our Business Segments Management evaluates operating performance through the analysis of results of operations of two distinct business segments: (i) student housing operations and (ii) development, construction and management services. Management evaluates each segment's performance by reference to net operating income, or NOI, which we define as operating income before depreciation and amortization. The accounting policies of our reportable business segments are described in more detail in the summary of significant accounting policies footnote (Note 2) to our consolidated financial statements. Intercompany fees are reflected at the contractually stipulated amounts, as adjusted to reflect our proportionate ownership of unconsolidated entities. 53 Student Housing Operations Our student housing operations are comprised of rental and other service revenues, such as application fees, pet fees and late payment fees. In August 2013 and September 2013, we opened three wholly-owned properties and an additional three properties that are owned in a real estate ventures in which we have a noncontrolling interest. Due to the continuous opening of new properties in consecutive years and annual lease terms that do not coincide with our reported fiscal (calendar) years, the comparison of our consolidated financial results from period to period may not provide a meaningful measure of our operating performance. For this reason, we divide the results of operations in our student housing operations segment between new property operations and "same-store" operations, which we believe provides a more meaningful indicator of comparative historical performance. "Same store" properties are our wholly-owned operating properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us and remaining in service through the end of the latest period presented or period being analyzed. "New properties" are our wholly-owned operating properties that we acquired or placed in service after the beginning of the earliest period presented or period being analyzed. We monitor NOI of our student housing properties, which is a non-GAAP financial measure. In general terms, we define NOI as student housing rental revenue less student housing operating expenses including real estate taxes related to our properties. We believe this measure provides an operating perspective not immediately apparent from GAAP operating income (loss) or net income (loss). We use NOI to evaluate performance on a community-by-community basis because it allows management to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by locality, have on our financial performance. To help make comparisons of NOI between periods more meaningful, we distinguish NOI from our properties that are wholly-owned and that were in service throughout each period presented (that is, our "same store" properties) from NOI from our other wholly-owned properties. We specifically calculate NOI by adding back to (or subtracting from) net income (loss) attributable to common stockholders the following expenses or charges: income tax expense, other expense, interest expense, equity in loss of unconsolidated entities, depreciation and amortization, ground lease expense, general and administrative expense, development, construction and management services expenses and other non-recurring costs or expenses. The following income or gains are then deducted from net income (loss) attributable to common stockholders, adjusted for add backs of expenses or charges: other income, development, construction and management services revenues and non-recurring income or gains. NOI excludes multiple components of net income (loss) attributable to common stockholders (computed in accordance with GAAP) and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially and adversely impact our results of operations. Therefore, the utility of NOI as a measure of our performance is limited. Additionally, other companies, including other equity REITs, may use different methodologies for calculating NOI and, accordingly, NOI as disclosed by such other companies may not be comparable to NOI published herein. We believe that in order to facilitate a clear understanding of our historical operating results, NOI should be examined in conjunction with net income (loss) as presented in the consolidated financial statements accompanying this report. NOI should not be considered as an alternative to net income (loss) attributable to common stockholders as an indicator of our properties' financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distribution.



Development, Construction and Management Services

Development and Construction Services. In addition to our wholly-owned properties, substantially all of which were developed and built by us, we also provide development and construction services to unconsolidated joint ventures in which we have an ownership interest. We act as a general contractor on all of our construction projects. When building properties for our own account (i.e., for entities that are consolidated in our financial statements), construction revenues and expenses are eliminated for accounting purposes and construction costs are ultimately reflected as capital additions. Thus, building properties for our own account does not generate any revenues or expenses in our development, construction and management services segment on a consolidated basis. Alternatively, when performing these services for unconsolidated joint ventures, we recognize construction revenues based on the costs that have been contractually agreed to with the joint venture for the construction of the property and expenses based on the actual costs incurred. Construction revenues are recognized using the percentage of completion method, as determined by construction costs incurred relative to total estimated construction costs, as adjusted to eliminate our proportionate ownership of each entity. Actual construction costs are expensed as incurred and are likewise adjusted to eliminate our proportionate ownership of each entity. Operating income generated by our development and construction activities generally reflects the development fee and construction fee income that is realized by providing these services to unconsolidated joint ventures (i.e., the "spread" between the contractual cost of construction and the actual cost of construction). 54 Management Services. In addition to our wholly-owned properties, all but one of which are managed by us, we also provide management services to unconsolidated joint ventures in which we have an ownership interest. We recognize management fees from these entities as earned in accordance with the property management agreement with these entities, as adjusted to eliminate our proportionate ownership of each entity. We have set forth a discussion comparing our consolidated results for the year ended December 31, 2013 to the consolidated results of our operations for the year ended December 31, 2012. Additionally, we have set forth a discussion comparing our consolidated results for year ended December 31, 2012 to the consolidated results for the year ended December 31, 2011. The historical results of operations presented below should be reviewed in conjunction with the notes to the consolidated financial statements accompanying this report.



Comparison of Years Ended December 31, 2013 and December 31, 2012

As of December 31, 2013, our property portfolio consisted of 31 consolidated operating properties, containing approximately 6,065 apartment units and 16,571 beds, and 38 operating properties held in five unconsolidated joint ventures, containing approximately 7,133 apartment units and 18,909 beds. Four consolidated operating properties have been presented in discontinued operations. As of December 31, 2012, our property portfolio consisted of 28 consolidated operating properties, containing approximately 5,480 apartment units and 14,920 beds, and seven operating properties held in three unconsolidated joint ventures, containing approximately 1,422 apartment units and 3,948 beds. Four consolidated operating properties have been presented in discontinued operations. 55 The following table presents our results of operations for the periods presented, including the amount and percentage change in these results between the periods (in thousands): Year Ended Year Ended December 31, December 31, 2013 2012 Change ($) Change (%) Revenues: Student housing rental $ 87,635$ 71,211 16,424 23.1 % Student housing services 3,615 2,880 735 25.5 % Development, construction and management services 51,069 54,295 (3,226) -5.9 % Total revenues 142,319 128,386 13,933 10.9 % Operating expenses: Student housing operations 40,346 32,633 7,713 23.6 % Development, construction and management services 46,759 50,493 (3,734) -7.4 % General and administrative 10,658 8,821 1,837 20.8 % Transaction costs 1,121 - 1,121 N/A Ground leases 249 217 32 14.7 % Impairment of unconsolidated entity 312 - 312 N/A Depreciation and amortization 23,700 20,693 3,007 14.5 % Total operating expenses 123,145 112,857 10,288 9.1 % Equity in earnings (loss) of unconsolidated entities (3,727) 361 (4,088) -1132.4 % Operating income 15,447 15,890 (443) -2.8 % Nonoperating income (expense): Interest expense (12,969) (11,545) (1,424) 12.3 % Other income (expense) 1,414 (410) 1,824 -444.9 % Gain on purchase of previously unconsolidated entities - 6,554 (6,554) -100.0 % Total nonoperating expense, net (11,555) (5,401) (6,154) 113.9 % Net income before income tax (benefit) expense 3,892 10,489 (6,597) -62.9 % Income tax benefit (expense) 727 (356) 1,083 -304.2 % Income from continuing operations 4,619 10,133 Income (loss) from discontinued operations (3,001) 665 Net income 1,618 10,798 (9,180) -85.0 % Net income (loss) attributable to noncontrolling interests (34) 46 (80) -173.9 % Dividends on preferred stock 6,183 4,114 2,069 50.3 % Net income (loss) attributable to common stockholders $ (4,531)$ 6,638 (11,169) -168.3 % Student Housing Operations Revenues in the student housing operations segment (which include student housing rental and student housing service revenues) increased by approximately $17.2 million and operating expenses in the student housing operations segment increased by approximately $7.7 million during the year ended December 31, 2013, as compared to the year ended December 31, 2012. The increase in revenues was primarily due to the opening of three new properties in August 2012 (The Grove at Auburn, Alabama, The Grove at Flagstaff, Arizona, and The Grove at Orono, Maine), our acquisitions in July 2012 (The Grove at Valdosta, Georgia, and The Grove at Moscow, Idaho), the acquisition of Campus Crest at Toledo, Ohio, in March 2013, the opening of two new properties in August 2013 (The Grove at Muncie, Indiana, and The Grove at Fort Collins, Colorado), the opening of the undamaged portion of a new property in August 2013 (The Grove at Pullman, Washington, see Note 3 to the accompanying consolidated financial statements) and an increase in our monthly revenue per occupied bed at our "same store" properties, offset by a decrease in our occupancy at our "same store" properties. The increase in operating expenses was primarily due to the aforementioned activity. 56 New Property Operations. In August 2012, we began operations at The Grove at Auburn, Alabama, The Grove at Flagstaff, Arizona, and The Grove at Orono, Maine, which contributed approximately $8.2 million of NOI ($13.2 million of revenues and $5.0 million of operating expenses) for the year ended December 31, 2013 compared to $3.9 million of NOI ($5.3 million of revenues and $1.4 million of operating expenses) for the year ended December 31, 2012. In July 2012, we acquired the remaining ownership interests in The Grove at Valdosta, Georgia, and The Grove at Moscow, Idaho, which contributed approximately $3.4 million of NOI ($6.0 million of revenues and $2.6 million of operating expenses) for the year ended December 31, 2013, compared to approximately $1.7 million of NOI ($2.9 million of revenues and $1.2 million of operating expenses) for the year ended December 31, 2012. Prior to the acquisition of these interests, we accounted for our ownership in these properties under the equity method. In March 2013, we acquired Campus Crest at Toledo, Ohio, which contributed approximately $0.4 million of NOI ($1.6 million of revenues and $1.2 million of operating expenses) for the year ended December 31, 2013, compared to no contribution for the year ended December 31, 2012. In August 2013, we began operation at The Grove at Muncie, Indiana, The Grove at Fort Collins, Colorado, The Grove at Flagstaff II, Arizona, and partial operations at The Grove at Pullman, Washington, which contributed, approximately $3.7 million of NOI ($4.0 million of revenues and $0.3 million of operating expenses) for the year ended December 31, 2013, compared to no contribution for the year ended December 31, 2012. "Same-Store" Property Operations. Our 23 "same-store" properties contributed approximately $35.0 million of NOI for the year ended December 31, 2013, as compared to approximately $35.9 million of NOI for the year ended December 31, 2012. The decrease in revenue at our "same-store" properties was due a decrease in average occupancy to approximately 91.8% for the year ended December 31, 2013 from approximately 92.4% for the year ended December 31, 2012, partially offset by an increase in average monthly revenue per occupied bed ("RevPOB") to $508 for the year ended December 31, 2013 from $501 for the year ended December 31, 2012. The increase in operating expenses was primarily due to increases in property-level payroll and utilities. The following is a reconciliation of our net income attributable to common stockholders to NOI for the periods presented, including our same store and new properties (in thousands): Year Ended Year Ended December 31, December 31, 2013 2012



Net (loss) income attributable to common stockholders $ (4,531)

$ 6,638 Net (loss) income attributable to noncontrolling interests (34) 46 Preferred stock dividends 6,183 4,114 Income tax (benefit) expense (727) 356 Other (income) expense (1,414) 410 Gain on purchase of previously unconsolidated entities -



(6,554)

(Income) loss on discontinued operations 3,001 (665) Impairment of unconsolidated joint venture 312 - Interest expense 12,969



11,545

Equity in (earnings) loss of unconsolidated entities 3,727 (361) Depreciation and amortization 23,700 20,693 Ground lease expense 249 217 General and administrative expense 10,658 8,821 Transaction costs 1,121 - Development, construction and management services expenses 46,759



50,493

Development, construction and management services revenues (51,069)

(54,295)

Total NOI from Continuing Operations $ 50,904$ 41,458 Same store properties NOI $ 35,046$ 35,875 New properties NOI $ 14,293$ 5,583 Pullman $ 1,191 $ - Toledo $ 374 $ -



Development, Construction and Management Services

Revenues and operating expenses in the development, construction and management services segment decreased by approximately $3.2 million and approximately $3.7 million, respectively, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Our development, construction and management services segment recognizes revenues and operating expenses for development, construction and management services provided to unconsolidated joint ventures in which we have an ownership interest. We eliminate revenue and related expenses on such transactions with our unconsolidated entities to the extent of our ownership interest. The decreases in development, construction and management services revenue and operating expenses were primarily due to a lower volume of unconsolidated service activity and the scope and timing of those services. For the year ended December 31, 2013, we provided construction and development services for five unconsolidated joint ventures and development-only services for three unconsolidated joint ventures. For the year ended December 31, 2012, we provided construction and development services for six unconsolidated joint ventures. Although we remain in the early stages of the construction cycle for our current round of developments, we believe our current round of developments will be materially in line with our expectations. General and Administrative General and administrative expenses increased from approximately $8.8 million for the year ended December 31, 2012 to approximately $10.6 million for the year ended December 31, 2013. The $1.8 million increase was primarily due to an increase in the number of full-time employees and travel expenses resulting from our growth. 57 Transaction Costs We recognized approximately $1.0 million in transaction costs related to the CB Portfolio Acquisition and approximately $0.1 million in transaction costs and travel related to the acquisition of the Toledo, Ohio property for the year ended December 31, 2013. See Note 5 to the accompanying consolidated financial statements. We capitalized approximately $16.9 million of direct, incremental costs related to the CB Portfolio Acquisition into the basis of our investment for the year ended December 31, 2013.



Impairment of Unconsolidated Joint Venture

We recognized an impairment of approximately $0.3 million in our investment in The Grove at Denton due to the difference between our purchase price in the acquisition of our remaining ownership interests in that joint venture as compared to its carrying value. See Note 18 to the accompanying consolidated financial statements.



Depreciation and Amortization

Depreciation and amortization expense increased from approximately $20.7 million for the year ended December 31, 2012 to approximately $23.7 million for the year ended December 31, 2013. This increase was primarily due to the increase in the number of operating properties.



Equity in Earnings (Loss) of Unconsolidated Entities

Equity in earnings (loss) of unconsolidated entities, which represents our share of the net income (loss) from entities in which we have a non-controlling interest, decreased from a gain of approximately $0.4 million for the year ended December 31, 2012 to a loss of approximately ($3.7) million for the year ended December 31, 2013 primarily due to a ($3.8) million loss from the CB Portfolio Acquisition and associated depreciation and amortization. Our ($3.8) million equity in losses in the CB Portfolio includes our share of the CB Portfolio's losses of approximately ($9.2) million and approximately ($0.3) million of amortization of the net difference in the Company's carrying value of our investment as compared to the underlying equity in net assets of the investee, offset by our share of the preferred payment of approximately $5.7 million. Had we not been entitled to the preferred payment of approximately $5.7 million, our equity in losses in the CB Portfolio for 2013 would have been approximately ($9.5) million. For the period from March 18, 2013 to December 31, 2013, the net loss of the CB Portfolio reflecting the impact of the Company's cost basis of its investment in Copper Beech, including adjustments related to purchase accounting, was approximately ($28.7) million. Our share of this net loss was approximately ($9.2) million. Our investment in the CB Portfolio entitles us to a preferred payment of $13.0 million over the first year of our investment, beginning March 18, 2013 and ending March 17, 2014. From March 18, 2013 through December 31, 2013, we were entitled to approximately $10.3 million of the preferred payment and were entitled to the remaining amount of approximately $2.7 million during the three months ended March 31, 2014. During 2013, the Company recognized $5.7 million of the $10.3 million in equity in earnings. The remaining $4.6 million of the $10.3 million was not recognized in equity in earnings, as we are required to eliminate the portion of the preferred payment related to our ownership interest in the CB Portfolio. As discussed above, had we not been entitled to the preferred payment, our equity in losses in the CB Portfolio for 2013 would have been approximately ($9.5) million, which includes the Company's share of the net loss of approximately ($9.2) million and ($0.3) million of amortization of the net difference in the Company's carrying value of investment as compared to the underlying equity in net assets of the investee. As of December 31, 2013, the CB Portfolio had paid the Company approximately $6.5 million of the preferred payment. We expect to receive the remaining $6.5 million prior to the end of the second quarter of 2014. See Note 5 to the accompanying consolidated financial statements. Interest Expense Interest expense increased approximately $1.4 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012 primarily due to an increase in average outstanding indebtedness, partially offset by a lower interest rate on our Revolving Credit Facility in 2013 and the write-off of approximately $1.0 million of deferred financing costs for the year ended December 31, 2012. 58 Other Income/(Expense) In connection with the CB Portfolio Acquisition, we recognized $1.4 million of income for the year ended December 31, 2013, resulting from interest earned on our $31.7 million notes receivable from the CB Investors. See Note 5 to the accompanying consolidated financial statements. Income Tax (Benefit) Expense Income tax (benefit) expense for the year ended December 31, 2013, was a $0.7 million benefit as compared to a $0.4 million expense for the year ended December 31, 2012 primarily due to the recognition of current and deferred tax credits related to solar panels owned by our TRS entities. See Note 4 in the accompany consolidated financial statements.



Income (Loss) from Discontinued Operations

For the year ending December 31, 2013, we recorded an impairment of approximately $4.7 million in connection with the sale of four wholly-owned properties: The Grove at Jacksonville, Alabama, The Grove at Jonesboro, Arkansas, The Grove at Wichita, Kansas, and The Grove at Wichita Falls, Texas and classified their results of operations within discontinued operations in the consolidated statements of operations and comprehensive income (loss). There was no such disposition during the year ending December 31, 2012.



Dividends on Preferred Stock

Dividends on preferred stock increased to approximately $6.2 million for the year ended December 31, 2013, compared to $4.1 million for the year ended December 31, 2012, primarily due to an increase in the average number of shares of preferred stock outstanding in 2013. In October 2013, we reopened our Series A Preferred Stock in an underwritten public offering of 3,800,000 shares of preferred stock. See Note 12 in the accompanying consolidated financial statements. Cash Flows Net cash provided by operating activities decreased by approximately $15.1 million (from approximately $29.5 million in 2012 to approximately $14.4 million in 2013), or 51.2%, primarily due to an increase over the prior year of approximately $8.2 million in cost in excess of billings and an increase of approximately $10.1 million in other operating assets. The $8.2 million increase in cost in excess of billings resulted from delays in receiving amounts due from two of our joint ventures, HSRE VI and HSRE X, for construction and development services performed by us for the benefit of the joint venture. These delays were primarily a result of HSRE VI not receiving funding from the lenders of the construction loans on a timely basis; such past due construction draws have since been funded to HSRE VI and the Company has received the amounts due for a significant portion of the cost in excess of billings in 2014. Additionally, the increase of approximately $10.1 million in other operating assets primarily related to receivables for services performed by us related to our joint ventures, business interruption proceeds with respect to our Pullman property and other operational items. The Company expects to collect these receivables in accordance with the payment terms of the applicable underlying agreements. Net cash used in investing activities totaled approximately $489.7 million for the year ended December 31, 2013 as compared to net cash used of approximately $133.1 million for the year ended December 31, 2012, an increase of approximately $356.6 million. This increase was primarily due to the CB Portfolio Acquisition as well as the property acquisitions in Toledo, Ohio and Montreal, Quebec, Canada. See Note 5 to the accompanying consolidated financial statements. Net cash provided by financing activities totaled approximately $501.4 million for the year ended December 31, 2013 as compared to net cash provided of approximately $98.8 million for the year ended December 31, 2012, an increase of approximately $402.6 million. For the year ended December 31, 2013, we received net proceeds of approximately $299.7 million from our common stock offering, which was used to fund the CB Portfolio Acquisition and net proceeds of $91.3 million and $100.0 million from our issuance of Series A Preferred Stock and Exchangeable Senior Notes, respectively, which were used in the repayment of debt, development funding and working capital purposes, offset by dividend payments on higher average shares during 2013 as compared to 2012.



Comparison of Years Ended December 31, 2012 and December 31, 2011

As of December 31, 2012, our property portfolio consisted of 28 consolidated operating properties, containing approximately 5,480 apartment units and 14,920 beds, and seven operating properties held in three unconsolidated joint ventures, containing approximately 1,422 apartment units and 3,948 beds. Four consolidated operating properties have been presented in discontinued operations. As of December 31, 2011, our property portfolio consisted of 23 consolidated operating properties, containing approximately 4,388 apartment units and 11,868 beds, and six operating properties held in two unconsolidated joint ventures, containing approximately 1,168 apartment units and 3,180 beds. Four consolidated operating properties have been presented in discontinued operations. 59



The following table presents our results of operations for the periods presented, including the amount and percentage change in these results between the periods (in thousands):

Year Ended Year Ended December 31, December 31, 2012 2011 Change ($) Change (%) Revenues: Student housing rental $ 71,211$ 49,048 22,163 45.2 % Student housing services 2,880 2,062 818 39.7 % Development, construction and management services 54,295 35,084 19,211 54.8 % Total revenues 128,386 86,194 42,192 49.0 % Operating expenses: Student housing operations 32,633 23,316 9,317 40.0 % Development, construction and management services 50,493 31,051 19,442 62.6 % General and administrative 8,821 6,749 2,072 30.7 % Ground leases 217 209 8 3.8 % Depreciation and amortization 20,693 16,524 4,169 25.2 % Total operating expenses 112,857 77,849 35,008 45.0 % Equity in earnings (loss) of unconsolidated entities 361 (1,164) 1,525 N/A Operating income 15,890 7,181



8,709 121.3 %

Nonoperating income (expense): Interest expense (11,545) (6,888) (4,657) 67.6 % Other income (expense) (410) 720 (1,130) -156.9 % Gain on purchase of previously unconsolidated interests 6,554 3,159 3,395 107.5 % Total nonoperating expense, net (5,401) (3,009) (2,392) 79.5 % Net income before income tax expense 10,489 4,172 6,317 151.4 % Income tax expense (356) (464) 108 -23.3 % Income from continuing operations 10,133 3,708 Income from discontinued operations 665 73 Net income 10,798 3,781 7,017 185.6 % Net income attributable to noncontrolling interests 46 51 (5) -9.8 % Dividends on preferred stock 4,114 - 4,114 N/A Net income attributable to common stockholders $ 6,638$ 3,730 2,908 78.0 % Student Housing Operations Revenues in the student housing operations segment (which include student housing rental and student housing service revenues) increased by approximately $23.0 million and operating expenses in the student housing operations segment increased by approximately $9.3 million, in 2012 as compared to 2011. The increase in revenues was primarily due to the opening of three new properties in August 2012, the acquisitions of The Grove at Valdosta, Georgia, and The Grove at Moscow, Idaho, in July 2012, the acquisitions of The Grove at Huntsville, Texas, and The Grove at Statesboro, Georgia, in December 2011, the inclusion of operating results for our August 2011 deliveries for a full calendar year in 2012 as well as increases in occupancy and monthly revenue per bed at our "same store" properties. The increase in operating expenses was primarily due to the aforementioned activity as well as an increase in "same store" property-level payroll and taxes, which was partially offset by a decrease in "same store" property-level utilities and in general office expenses. New Property Operations. In August 2012, we began operations at The Grove at Auburn, Alabama, The Grove at Flagstaff, Arizona, and The Grove at Orono, Maine, which contributed approximately $3.9 million in NOI for the year ended December 31, 2012 compared to no contribution for the year ended December 31, 2011. In July 2012, we acquired the remaining ownership interests in The Grove at Valdosta and The Grove at Moscow which contributed approximately $1.7 million of NOI for the year ended December 31, 2012, compared to no contribution for the year ended December 31, 2011. Prior to the acquisition of these interests, we accounted for our ownership in this property under the equity method. In December 2011, we acquired the remaining ownership interests in The Grove at Huntsville, Texas, and The Grove at Statesboro, Georgia, which contributed approximately $3.0 million of NOI for the year ended December 31, 2012, as compared to an immaterial amount of NOI for the year ended December 31, 2011. Prior to the acquisition of these interests, we accounted for our ownership in this property under the equity method. In August 2011, we began operations at The Grove at Ames, Iowa, The Grove at Clarksville, Tennessee, The Grove at Columbia, Missouri, and The Grove at Fort Wayne, Indiana, which contributed approximately $6.3 million in NOI for the year ended December 31, 2012, as compared to approximately $3.0 million in NOI for the year ended December 31, 2011. 60 "Same-Store" Property Operations. Our 17 "same-store" properties contributed approximately $26.5 million of NOI for the year ended December 31, 2012, as compared to approximately $24.8 million of NOI for the year ended December 31, 2011. The increase in revenue at our "same-store" properties was due to an increase in the average occupancy to approximately 93.7% for the year ended December 31, 2012 from approximately 92.0% for the year ended December 31, 2011 and an increase in average monthly revenue per occupied bed ("RevPOB") to $501 for the year ended December 31, 2012 from $493 for the year ended December 31, 2011. The increase in operating expenses was primarily due to property-level payroll and taxes which was partially offset by decreases in same store property-level utilities and general office expenses.



The following is a reconciliation of our net income (loss) attributable to common stockholders to NOI for the periods presented, including our same store and new properties (in thousands):

Year Ended Year Ended December 31, December 31, 2012 2011



Net (loss) income attributable to common stockholders $ 6,638$ 3,730 Net (loss) income attributable to noncontrolling interests

46 51 Preferred stock dividends 4,114 - Income tax expense 356 464 Other (income) expense 410 (720) Gain on purchase of previously unconsolidated entities (6,554) (3,159) Income from discontinued operations (665) (73) Interest expense 11,545 6,888 Equity in (earnings) loss of unconsolidated entities (361) 1,164 Depreciation and amortization 20,693 16,524 Ground lease expense 217 209 General and administrative expense 8,821 6,749 Development, construction and management services expenses 50,493 31,051



Development, construction and management services revenues (54,295) (35,084) Total NOI from Continuing Operations

$ 41,458$ 27,794 Same store properties NOI $ 26,528$ 24,824 New properties NOI $ 14,930$ 2,970



Development, Construction and Management Services

Revenues and operating expenses in the development, construction and management services segment increased by approximately $19.2 million and approximately $19.4 million, respectively, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. Our development, construction and management services segment recognizes revenues and operating expenses for development, construction and management services provided to unconsolidated joint ventures in which we have an ownership interest. We eliminate revenue and related expenses on such transactions with our unconsolidated entities to the extent of our ownership interest. The increases in development, construction and management services revenue and operating expenses were primarily due to a higher volume of unconsolidated service activity and the timing of that service activity. During the year ended December 31, 2012, we completed construction on three joint venture projects for which we had a 10% ownership interest and began construction on three additional joint venture projects for which we had a 20% ownership interest. During the year ended December 31, 2011, we completed construction on two joint venture projects for which we had a 20% ownership interest and began construction on three additional joint venture projects for which we had a 10% ownership interest. General and Administrative General and administrative expenses increased from approximately $6.8 million for the year ended December 31, 2011 to approximately $8.8 million for the year ended December 31, 2012. The $2.0 million increase was primarily due to an increase in the number of employees and travel expenses resulting from our growth.



Depreciation and Amortization

Depreciation and amortization expense increased from approximately $16.5 million for the year ended December 31, 2011 to approximately $20.7 million for the year ended December 31, 2012. This increase was primarily due to the increase in the number of operating properties.



Equity in Earnings (Loss) of Unconsolidated Entities

Equity in earnings (loss) of unconsolidated entities increased to a gain of approximately $0.4 million for the year ended December 31, 2012 from a loss of approximately $1.2 million for the year ended December 31, 2011. This increase was primarily due to the addition of three unconsolidated properties commencing operations in August 2012 and two unconsolidated properties commencing operations in August 2011, partially offset by our acquisition of the remaining ownership interests in The Grove at Valdosta, Georgia, and The Grove at Moscow, Idaho, in July 2012 and The Grove at Huntsville, Texas, and The Grove at Statesboro, Georgia, in December 2011. The increase was also due to refinancing initiatives during the fourth quarter of 2011 that resulted in a decrease in interest expense and an increase in return on our preferred investments. 61 Interest Expense Interest expense increased approximately $4.6 million to approximately $11.5 million for the year ended December 31, 2012 as compared to approximately $6.9 million for the year ended December 31, 2011. This increase was primarily due to an increase in outstanding indebtedness during 2012 as compared to 2011 resulting from an increase in the number of operating properties as well as an increase in write-offs of deferred financing costs due to refinancing activities. Other Income/(Expense) Other income/(expense) decreased approximately $1.1 million from a gain of approximately $0.7 million for the year ended December 31, 2011 to a loss of approximately $0.4 million for the year ended December 31, 2012. This decrease was primarily due to interest income earned in 2011 on cash balances, which was not earned in 2012, as well as a decrease in the fair value of interest rate derivatives decreased to a loss of approximately $0.2 million for the year ended December 31, 2012 as compared to a gain of approximately $0.3 million for the year ended December 31, 2011. This decrease was primarily due to a decrease in non-cash mark-to-market adjustments of approximately $0.3 million combined with an increase in monthly net cash settlements of approximately $0.2 million.



Gain on Purchase of Previously Unconsolidated Interests

The gain on purchase of previously unconsolidated interests for the year ended December 31, 2012 was due to our acquisition of the remaining ownership interests in The Grove at Valdosta, Georgia, and The Grove at Moscow, Idaho, and our associated remeasurement of those interests. The gain for the year ended December 31, 2011 was due to our acquisition of the remaining ownership interests in The Grove at Huntsville, Texas, and The Grove at Statesboro, Georgia, and our associated remeasurement of those interests. Income Tax Expense



Income tax expense in 2012 was relatively unchanged compared to 2011 at approximately $0.4 million and approximately $0.5 million, respectively, due to comparable levels in service activity by our TRSs. We managed seven unconsolidated joint venture properties during 2012 as compared to nine unconsolidated joint venture properties during the same period in the prior year.

Cash Flows Net cash provided by operating activities was approximately $29.5 million for the year ended December 31, 2012 as compared to approximately $22.8 million for the year ended December 31, 2011, an increase of approximately $6.7 million. Approximately $4.9 million was used by working capital purposes for the year ended December 31, 2012 as compared to approximately $2.0 million used by working capital accounts for the year ended December 31, 2011, an increase of approximately $2.9 million. The increase in net cash provided by operating activities was primarily due to the payments into restricted cash accounts required by our lenders and an increase in construction related receivables, partially offset by an increase in outstanding accounts payable and accrued expenses. We also added three wholly-owned and three joint venture properties for the year ended December 31, 2012 along with receiving a full year benefit of the four wholly-owned and two joint venture deliveries from 2011. We also acquired two joint venture properties in December 2011 and two additional joint venture properties in July 2012. These factors, along with increased occupancy at our existing properties contributed to the increase net cash provided by operating activities. Net cash used in investing activities totaled approximately $133.1 million for the year ended December 31, 2012 as compared to net cash used of approximately $126.9 million for the year ended December 31, 2011, an increase of approximately $6.2 million. This increase was primarily due to expenditures on development projects, contributions to joint ventures and the acquisition of The Grove at Valdosta and The Grove at Moscow during 2012. Net cash provided by financing activities totaled approximately $98.8 million for the year ended December 31, 2012 as compared to net cash provided of approximately $112.6 million for the year ended December 31, 2011, a decrease of approximately $13.8 million. This decrease was primarily due to an increase in net financing activity resulting from increased draws and the repayment of our line of credit, mortgage and construction notes, partially offset by the proceeds from the sale of preferred and common stock.



Liquidity and Capital Resources

Our capital resources include accessing the public debt and equity markets, when available, mortgage and construction loan financing and immediate access to the Amended Credit Facility (discussed below). 62 As a REIT, we generally must distribute annually at least 90% of our REIT taxable income, excluding any net capital gain, in order for corporate income tax not to apply to earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S. 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 distribute to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to our stockholders to comply with the requirements of the Internal Revenue Code and to avoid paying corporate tax on undistributed income. Additionally, we intend to make distributions that exceed these requirements. We may need to obtain financing to meet our distribution requirements because:



· our income may not be matched by our related expenses at the time the income

is considered received for purposes of determining taxable income; and



· non-deductible capital expenditures, creation of reserves or debt service

requirements may reduce available cash but not taxable income. In these circumstances, we may be forced to obtain third-party financing on terms we might otherwise find unfavorable, and we cannot provide assurance that we will be able to obtain such financing. Alternatively, if we are unable or unwilling to obtain third-party financing on the available terms, we could choose to pay a portion of our distributions in stock instead of cash, or we may fund distributions through asset sales. Principal Capital Resources In January 2013, we entered into the Second Amended and Restated Credit Agreement, which provides for a $250 million senior unsecured Revolving Credit Facility, a $50 million term loan, and an accordion feature that, under certain circumstances, allows us to request an increase in the total commitments by an additional $300.0 million, increasing total commitments to $600.0 million. The Second Amended and Restated Credit Facility will mature in January 2017 and contains a one-year extension option, subject to certain terms and conditions. As of December 31, 2013, we had approximately $58.5 million outstanding under our Revolving Credit Facility and $50 million outstanding under the Term Loan. The amounts outstanding under our Revolving Credit Facility and Term Loan, as well as outstanding letters of credit, will reduce the amount that we may be able to borrow under this facility for other purposes. As of December 31, 2013, we had approximately $154.1 million in borrowing capacity under our revolving credit facility, and amounts borrowed under the facility will be due at its maturity in January 2017, subject to a one-year extension, which we may exercise at our option, subject to the satisfaction of certain terms and conditions, including the payment of an extension fee. The amount available for us to borrow under the Amended Credit Facility is based on the sum of (a) the lesser of (i) 60.0% of the "as-is" appraised value of our properties that form the borrowing base of the Amended Credit Facility and (ii) the amount that would create a debt service coverage ratio of not less than 1.5, and (b) 50% of the aggregate of the lesser of (i) the book value of each of our development assets (as such term is defined in the Second Amended and Restated Credit Agreement) and (ii) the "as-is" appraised value of each of our development assets, subject to certain limitations in the Second Amended and Restated Credit Agreement. We incur an unused fee on the balance between the amount available under the Revolving Credit Facility and the amount outstanding under the Revolving Credit Facility (i) of 0.30% per annum if our average borrowing is less than 50.0% of the total amount available or (ii) 0.25% per annum if our average borrowing is greater than 50.0% of the total amount available. Additionally, the Amended Credit Facility has an accordion feature that allows us to request an increase in the total commitments from $300.0 million to $600.0 million, subject to conditions. Amounts outstanding under the Amended Credit Facility bear interest at a floating rate equal to, at our election, the Eurodollar Rate or the Base Rate (each as defined in the Second Amended and Restated Credit Agreement) plus a spread that depends upon our leverage ratio. The spread for borrowings under the Revolving Credit Facility ranges from 1.75% to 2.50% for Eurodollar Rate based borrowings and from 0.75% to 1.50% for Base Rate based borrowings, and the spread for the Term Loan ranges from 1.70% to 2.45% for Eurodollar Rate based borrowings and from 0.70% to 1.45% for Base Rate based borrowings.



Our ability to borrow under the Amended Credit Facility is subject to its ongoing compliance with a number of customary financial covenants, including:

· a maximum leverage ratio of not greater than 0.60:1.00; · a minimum fixed charge coverage ratio of not less than 1.50:1.00;



· a minimum ratio of fixed rate debt and debt subject to hedge agreements to

total debt of not less than 66.67%; · a maximum secured recourse debt ratio of not greater than 20.0%;



· a minimum tangible net worth of not less than the sum of $330,788,250 plus an

amount equal to 75.0% of the net proceeds of any additional equity issuances;

and



· a maximum secured debt ratio of not greater than 50% through February 17, 2013

and not greater than 45.0% on any date thereafter. Pursuant to the terms of the Amended Credit Facility, we may not pay distributions that exceed the greater of (i) 95.0% of our funds from operations, or (ii) the minimum amount required for us to qualify and maintain our status as a REIT. If a default or event of default occurs and is continuing, we also may be precluded from making certain distributions (other than those required to allow us to qualify and maintain our status as a REIT). In April 2013, as a result of the CB Portfolio Acquisition, we received a waiver from our lender group allowing for distributions up to 110.0% of our funds from operations for the remainder of 2013. 63 In February 2013, we amended the Amended Credit Facility to provide for certain exclusions related to our investments in joint ventures as well as the treatment of certain other investments within the compliance calculation of our secured debt ration and certain negative covenants. We and certain of our subsidiaries guarantee the obligations under the Amended Credit Facility and we and certain of our subsidiaries have provided a negative pledge against specified assets (including real property), stock and other interests. In June 2013, in connection with our investment in a joint venture with Beaumont to acquire a property in Montreal, Quebec, Canada, we received a waiver from our lender group allowing us to guarantee debt incurred by our subsidiary, Campus Crest at Montreal I, LLC, to fund such investment.



As of December 31, 2013, we were in compliance with the above financial covenants with respect to our Amended Credit Facility.

In February 2012, we completed an underwritten public offering of approximately 2.3 million shares of our Series A Preferred Stock, including approximately 0.3 million shares issued and sold pursuant to the exercise of the underwriters' overallotment option in full (see Note 13 in the accompanying consolidated financial statements).



In July 2012, we issued approximately 7.5 million shares of common stock, including the full exercise of the underwriters' option to purchase additional shares (see Note 13 in the accompanying consolidated financial statements).

In March 2013, we completed an underwritten public offering of approximately 25.5 million shares of common stock, including the full exercise of the underwriters' option to purchase additional shares (see Note 13 in the accompanying consolidated financial statements).

In October 2013, we reopened our Series A Preferred Stock in an underwritten public offering of approximately 3.8 million shares, including approximately 0.4 million shares issued and sold pursuant to the exercise of the underwriters' option to purchase additional shares of the Series A Preferred Stock (see Note 13 in the accompanying consolidated financial statements).



In October 2013, we issued $100.0 million of Exchangeable Senior Notes due October 15, 2018 (see Note 8 in the accompanying consolidated financial statements).

Short-Term Liquidity Needs We believe that we will have sufficient capital resources as a result of operations and the borrowings in place to fund ongoing operations and distributions required to maintain REIT compliance. We anticipate using our cash flow from continuing operations, cash and cash equivalents, and Amended Credit Facility availability to fund our business operations, cash dividends and distributions, debt amortization, and recurring capital expenditures. Capital requirements for significant acquisitions and development projects may require funding from borrowings and/or equity offerings.



Recurring Capital Expenditures

Our properties require periodic investments of capital for general maintenance. These recurring capital expenditures vary in size annually based upon the nature of the maintenance required for that time period. For example, recently developed properties typically do not require major maintenance such as the replacement of a roof. In addition, capital expenditures associated with newly acquired or developed properties are capitalized as part of their acquisition price or development budget, so that such properties typically begin to require recurring capital expenditures only following their first year of ownership.



Our historical recurring capital expenditures at our consolidated properties are set forth below (in thousands, except Average Per Bed amount):

Year Ended December 31, 2013 2012 2011 Investment in wholly-owned developments $ 126,242$ 104,051



$ 107,328

Acquisition of previously unconsolidated entities $ 13,801$ 15,352$ 13,510 Capital improvements

13,898 5,700



2,902

Recurring capital expenditures 2,027 1,416



905

Investment in operating properties $ 29,726$ 22,468



$ 17,317

Total Beds as of January 1(1) 16,936 13,884



10,528

Average Recurring CapEx Per Bed $ 120$ 102



$ 86

--------------------------------------------------------------------------------

(1) Total number of beds as of January 1 of the year indicated, excluding beds

at consolidated properties that commenced operations during the year

indicated, as they did not require material recurring capital expenditures.

64 We invested approximately $126.2 million, $104.0 million and $107.3 million in wholly-owned developments for the years ended December 31, 2013, 2012, and 2011, respectively. In 2013, we completed construction on three development projects and began construction on another four projects targeted for completion in the third quarter of 2014. In 2012, we completed construction on three development projects and began construction on another three projects targeted for completion in the third quarter of 2013. In 2011, we completed construction on four development projects and began construction on another three projects targeted for completion in the third quarter of 2012. Our scope and number of projects under construction will be contingent upon our access to capital among other factors. We invested approximately $29.7 million, $22.5 million and $17.3 million in our operating properties for the years ended December 31, 2013, 2012, and 2011, respectively. Capital improvements at our wholly-owned properties include betterments to buildings, clubhouse renovations, parking lots, solar panel installations and other capital improvements. We expect our capital improvements to increase over time as our portfolio expands as well as our average recurring capital expenditures per bed to increase as our portfolio ages. Development Expenditures Our development activities have historically required us to fund pre-development expenditures such as architectural fees, engineering fees and earnest deposits. Because the closing of a development project's financing is often subject to various delays, we cannot always predict accurately the liquidity needs of these activities. We frequently incur these pre-development expenditures before a financing commitment has been obtained and, accordingly, bear the risk of the loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms. We are building six new student housing properties, four of which are wholly-owned by us and two of which are owned by HSRE X, a joint venture that we established with HSRE, and in which we own a 30% interest. We are currently targeting completion of these six properties for the 2014-2015 academic year. For each of these projects, we commenced construction subsequent to conducting significant pre-development activities. We estimate that the cost to complete all four wholly-owned properties will be approximately $123.6 million. Additionally, we will be obligated to fund our pro rata portion of the development costs of our joint venture with HSRE, and we estimate that the cost to complete the two joint venture properties will be approximately $69.1 million and our net pro rata share of equity will be approximately $20.7 million. No assurance can be given that we will complete construction of these six properties in accordance with our current expectations (including the estimated cost thereof). During 2013, we closed on the financing necessary for our six 2014-2015 development projects. We intend to finance our share of the remaining construction costs through the Revolving Credit Facility. We are also building one new student housing property that is owned by HSRE IX, a joint venture that we established with HSRE and Brandywine, in which we own a 30% interest. We are currently targeting completion of this property for the 2014-2015 academic year. We estimate the cost to complete this joint venture property to be approximately $158.5 million and our net pro rata share of equity will be approximately $47.6 million. No assurance can be given that we will complete construction of this property in accordance with our current expectations (including the estimated cost thereof). During January 2013, we closed on the financing necessary for this development project. We intend to finance our share of the construction costs through the Revolving Credit Facility. We are also redeveloping one new student housing property that is owned by DCV Holdings, a joint venture that we established with Beaumont in which we own a 20% interest. We currently expect this property to be completed prior to the 2014-2015 academic year. We estimate the cost to complete this joint venture property will be $88.2 million and our net pro rata share of equity will be approximately $30.9 million. No assurance can be given that we will complete construction on this property in accordance with our current expectations (including the estimated cost thereof). The joint venture closed on financing for this project and an additional redevelopment project in January 2014 (See Note 18). We are the guarantor of this financing. We intend to finance our share of the construction costs through the Revolving Credit Facility. Copper Beech is also building one new student housing property in which our interest will be commensurate with the remainder of the CB portfolio. We currently expect this property to be completed prior to the 2014-2015 academic year. The estimated cost to complete this joint venture property will be approximately $33.6 million and our net pro rata share of equity will be $22.5 million. No assurance can be given that we will complete construction on this property in accordance with our current expectations (including the estimated cost thereof). We intend to finance our share of the construction costs through the Revolving Credit Facility.



In July 2013, we experienced a fire at The Grove at Pullman, Washington, a property under construction (see Note 3 in the accompanying consolidated financial statements). We do not believe the fire at The Grove at Pullman, Washington, will have an adverse effect on our short or long-term liquidity needs due to insurance recoveries.

Long-Term Liquidity Needs Our long-term liquidity needs consist primarily of funds necessary to pay for long-term development activities, non-recurring capital expenditures, potential acquisitions of properties and payments of debt at maturity. Long-term liquidity needs may also include the payment of unexpected contingencies, such as remediation of unknown environmental conditions at our properties or at additional properties that we develop or acquire, or renovations necessary to comply with the ADA or other regulatory requirements. We do not expect that we will have sufficient funds on hand to cover all of our long-term liquidity needs. We will therefore seek to satisfy these needs through cash flow from operations, additional long-term secured and unsecured debt, including borrowings under our Revolving Credit Facility, the issuance of debt securities, the issuance of equity securities and equity-related securities (including OP units), property dispositions and joint venture transactions. We believe that we will have access to these sources of capital to fund our long-term liquidity requirements, but we cannot make any assurance that this will be the case, especially in difficult market conditions. 65 Commitments



The following table summarizes our contractual commitments as of December 31, 2013 (including future interest payments) (in thousands):

Contractual Obligations Total 2014 2015-2016 2017-2018 Thereafter Long-Term Debt Obligations $ 416,724$ 2,437$ 88,729$ 271,038$ 54,520 Interest Payments on Outstanding Debt Obligations 51,300 12,134 22,168 8,727 8,271 Operating Lease Obligations 34,611 1 ,237 2,597 2,629 28,148 Purchase Obligations(1) 73,200 72,299 901 - - Total(2) $ 575,835$ 88,107$ 114,395$ 282,394$ 90,939



(1) Obligations relate to subcontracts executed by Campus Crest Construction to

complete projects under construction at December 31, 2013.



(2) Excludes joint venture debt of approximately $32.7 million due to mature in

January 2014 (in February 2014, we extended the maturity date to February

2015), of which we are a 49.9% owner, approximately $1.0 million that

matures in July 2016, of which we are a 30% owner, approximately $16.8

million and $33.0 million that matures between March 2014 and December 2015,

of which we are a 20.0% owner, and approximately $49.1 million that matures

between December 2014 and January 2015, of which we are a 10.0% owner. We

are the guarantor of these loans.



Long-Term Indebtedness Outstanding

See Note 8 in the accompanying consolidated financial statements for our outstanding consolidated indebtedness.

The weighted average annual interest rate on our total long-term indebtedness as of December 31, 2013 was approximately 4.23%. At December 31, 2013, our ratio of debt to total market capitalization was approximately 40.5%, excluding indebtedness encumbering our current and future joint venture properties. However, we expect to incur additional indebtedness, consistent with our financing policy, in connection with our development activities.



At December 31, 2013, after receipt of waivers, we were in compliance with all financial covenants with respect to our Amended Credit Facility.

Off-Balance Sheet Arrangements

Joint Ventures We have investments in real estate ventures with CB Investors, HSRE, Brandywine and Beaumont which are not consolidated by us. These joint ventures are engaged primarily in developing, constructing, owning and managing student housing properties in the United States and Canada. Along with the joint venture partners, we hold joint approval rights for major decisions, including those regarding property acquisition and disposition as well as property operations. As such, we hold noncontrolling interests in these joint ventures and account for them under the equity method of accounting. 66 We are the guarantor of the construction and mortgage debt of our ventures with HSRE and Beaumont. Detail of our unconsolidated investments at December 31, 2013 is presented in the following table (in thousands): Debt Weighted Number of Properties Average Our Year In Under Our Total Amount Interest Unconsolidated Entities Ownership Founded Operation Development Investment Outstanding Rate Maturity Date / Range HSRE-Campus Crest I, LLC 49.9 % 2009 3 - $ 10,584$ 32,704 2.67 % (1) 2/9/2015 HSRE-Campus Crest IV, LLC 20.0 % 2011 1 - 1,915 16,839 5.75 % (2) 3/1/2014 HSRE-Campus Crest V, LLC 10.0 % 2011 3 - 3,990 49,058 2.88 % (1) 12/20/2014 - 01/05/2015 HSRE-Campus Crest VI, LLC 20.0 % 2012 3 - 13,562 32,998 2.53 % (1) 5/08/2015 - 12/19/2015 HSRE-Campus Crest IX, LLC 30.0 % 2013 - 1 18,540 966 2.37 % (1) 7/25/2016 HSRE-Campus Crest X, LLC 30.0 % 2013 - 2 7,783 - n/a n/a CB Portfolio 67.0 % 2013 28 1 261,592 392,458 5.65 % (3) 6/01/2014 - 10/01/2020 DCV Holdings, LP (4) 20.0 % 2013 - 2 5,337 32,881 3.72 % 1/31/2014 Other 20.0 % 2013 - - 1,535 - n/a n/a Total Unconsolidated Entities 38



6 $ 324,838$ 557,904 4.93 %

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(1) Variable interest rates. (2) Comprised of one fixed rate loan. In January 2014, we acquired the outstanding ownership of The Grove at Denton, Texas. (3) Comprised of fixed rate debt.



(4) In January 2014, DCV Holdings completed the acquisition of an additional

re-development property in Montreal, Canada, evo À Sherbrooke, at which time

our ownership percentage in CSH Montreal, the holding company that owns DCV

Holdings, increased to 35% (see Note 18 to the accompanying consolidated

financial statements). Effective December 31, 2013, the debt previously

held by the Company was assumed by an affiliate of the joint venture and refinanced in January 2014. Funds From Operations (FFO) FFO is used by industry analysts and investors as a supplemental operating performance measure for REITs. We calculate FFO in accordance with the definition that was adopted by the Board of Governors of NAREIT. FFO, as defined by NAREIT, represents net income (loss) determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In addition, in October 2011, NAREIT communicated to its members that the exclusion of impairment write-downs of depreciable real estate is consistent with the definition of FFO. We use FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating expenses. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially and adversely impact our results of operations, the utility of FFO as a measure of our performance is limited. While FFO is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating FFO and, accordingly, FFO as disclosed by such other REITs may not be comparable to FFO published herein. Therefore, we believe that in order to facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (loss) as presented in the consolidated financial statements accompanying this report. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our properties' financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. 67



The following table presents a reconciliation of our FFO to our net income (loss) for the periods presented (in thousands):

Year Ended Year Ended Year Ended December 31, December 31, December 31, (in thousands) 2013 2012 2011 Funds from operations ("FFO") Net income (loss) attributable to common stockholders $ (4,531)$ 6,638$ 3,730 Net income (loss) attributable to noncontrolling interests (34) 46 51 Impairment of disposed assets 4,729 - - Impairment of investment in unconsolidated entity 312 - - Gain on purchase of joint venture properties(1) - (6,554) (3,159) Real estate related depreciation and amortization, including discontinued operations 25,503 23,521 19,832 Real estate related depreciation and amortization unconsolidated entities 23,271 1,731 2,434 FFO $ 49,250$ 25,382$ 22,888



(1) For 2012, gain is from the purchase of our joint venture partner's interest

in The Grove at Moscow, Idaho and The Grove at Valdosta, Georgia; for 2011,

gain is from the purchase of our joint venture partner's interest in The Grove at Huntsville, Texas and The Grove at Statesboro, Georgia. In addition to FFO, we believe it is also a meaningful measure of our performance to adjust FFO to exclude the change in fair value of unhedged interest rate derivatives, write-off of unamortized deferred financing fees, transaction costs (including those within equity in earnings), fair value of debt adjustments within our investment in Copper Beech and the write-off of development costs. Excluding the non-cash portion of the change in fair value of unhedged interest rate derivatives, write-off of unamortized deferred financing fees, transaction costs (including those within equity in earnings), fair value of debt adjustments within our investment in Copper Beech and the write-off of development costs adjusts FFO to be more reflective of operating results prior to capital replacement or expansion, debt amortization of principal or other commitments and contingencies. This measure is referred to herein as "FFOA.". Year Ended Year Ended Year Ended December 31, December 31, December 31, 2013 2012 2011 FFO $ 49,250$ 25,382$ 22,888 Elimination of write-off of unamortized deferred financing fees 236 966 - Elimination of write-off of development costs 175 - - Elimination of transaction costs 1,121 - - Elimination of transaction costs included in equity in earnings 906 - - Elimination of fair value debt and purchase accounting adjustments at our investment in Copper Beech (3,576) - - Elimination of change in fair value of interest rate derivatives(1) - - (337) Funds from operations adjusted ("FFOA") $ 48,112$ 26,348$ 22,551



(1) Includes only the non-cash portion of the change in unhedged derivatives.

Inflation Our student housing leases typically do not have terms that extend beyond 12 months. Accordingly, although on a short-term basis we would be required to bear the impact of rising costs resulting from inflation, we have the opportunity to raise rental rates at least annually to offset any rising costs. However, our ability to raise rental rates could be limited by a weak economic environment, declining student enrollment at our principal colleges and universities or competition in the marketplace.



Recent Accounting Pronouncements

See Note 2 in the accompanying consolidated financial statements.


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