News Column

American Campus Communities, Inc. Reports Second Quarter 2014 Financial Results

July 22, 2014

Raises guidance, reports Fall 2014 preleasing 200 basis points ahead of last year

AUSTIN, Texas--(BUSINESS WIRE)-- American Campus Communities, Inc. (NYSE:ACC) today announced the following financial results for the quarter ended June 30, 2014.

Highlights

  • Increased quarterly FFOM per share by 9.4 percent to $0.58 per fully diluted share or $62.3 million, versus $0.53 per fully diluted share or $56.3 million for the second quarter prior year.
  • Increased same store wholly-owned net operating income ("NOI") by 2.3 percent over the second quarter 2013.
  • Achieved same store wholly-owned occupancy of 90.1 percent as of June 30, 2014 compared to 89.5 percent for the same date prior year.
  • Preleased the same store wholly-owned portfolio for the upcoming academic year to 100.6 percent applied for and 92.8 percent leased as of July 18, 2014 with a current projected rental rate increase of 2.1 percent. This compares to 98.6 percent applied for and 90.8 percent leased for the same date prior year.
  • Commenced construction on U Club on Woodward Phase Two, a $37.1 million, 496-bed owned off-campus development located pedestrian to Florida State University slated for occupancy in Fall 2015. The community is located adjacent to the company’s highly successful U Club on Woodward that was fully preleased in December 2013 for the upcoming 2014/2015 academic year.
  • Closed on financing and commenced construction on a 492-bed third-party on-campus development project at The University of Toledo with $2.1 million in development fees expected to be earned during the construction period which is scheduled for completion in Fall 2015.
  • Subsequent to quarter end, closed on financing and commenced construction on a third-party on-campus development project containing 482 beds at Texas A&M University-Corpus Christi. The project is scheduled for delivery in Fall 2015 with estimated fees of $1.5 million to be earned over the construction period.
  • Completed a $400 million bond offering, issuing 10-year senior unsecured notes with a 4.142 percent yield and 4.125 percent coupon.
  • R.D. Burck, Independent Chairman of the American Campus Board of Directors, was named one of six finalists for the New York Stock Exchange Governance Services Leadership Award for Nonexecutive Chairman of the Year.

    “We are pleased to have delivered healthy NOI and FFOM per share growth in the quarter,” said Bill Bayless, American Campus CEO. “We are focused on a strong completion of the current lease-up coupled with continued asset management and expense control efforts to set the stage for future growth and value creation.”

    Second Quarter Operating Results

    Revenue for the 2014 second quarter totaled $172.0 million, up 12.2 percent from $153.2 million in the second quarter 2013 and operating income for the quarter increased $9.4 million or 36.3 percent over the prior year second quarter. The increase in revenues and operating income was primarily due to growth resulting from property acquisitions, recently completed development properties, and increased rental rates for the 2013-2014 academic year. Net income for the 2014 second quarter totaled $13.4 million, or $0.12 per fully diluted share, compared with net income of $8.0 million, or $0.07 per fully diluted share, for the same quarter in 2013. The increase in net income as compared to the prior year quarter is primarily due to the increase in operating income discussed above, offset by an increase in corporate interest expense. FFO for the 2014 second quarter totaled $61.6 million, or $0.58 per fully diluted share, as compared to $55.6 million, or $0.52 per fully diluted share for the same quarter in 2013. FFOM for the 2014 second quarter was $62.3 million, or $0.58 per fully diluted share as compared to $56.3 million, or $0.53 per fully diluted share for the same quarter in 2013. A reconciliation of FFO and FFOM to net income is shown in Table 3.

    NOI for same store wholly-owned properties was $78.6 million in the quarter, an increase of 2.3 percent over $76.8 million in the 2013 second quarter. Same store wholly-owned property revenues increased by 0.8 percent over the 2013 second quarter due to an increase in average rental rates for the 2013-2014 academic year. Same store wholly-owned property operating expenses decreased by 0.9 percent over the prior year quarter due to reductions in most major operating expense categories, including a 34.3 percent decrease in marketing expense, offset by increases in property taxes and utilities. NOI for the total wholly-owned portfolio increased 13.6 percent to $87.6 million for the quarter from $77.1 million in the comparable period of 2013.

    Portfolio Update

    As of July 18, 2014, the company’s same store wholly-owned portfolio was 100.6 percent applied for and 92.8 percent leased for the upcoming academic year compared to 98.6 percent applied for and 90.8 percent leased for the same date prior year, with a 2.1 percent current projected rental rate increase over the in-place rent.

    Developments

    During the quarter, the company completed construction of the $34.3 million first phase of Merwick Stanworth, a wholly-owned 127-unit core development which was structured via the American Campus Equity (ACE®) program. The pedestrian community is located less than one-half mile from the main University campus and is intended to serve and house primarily faculty and staff members of Princeton University. This faculty and staff community is expected to stabilize during the first academic session.

    The company is progressing on the remaining $582.9 million owned and mezzanine development pipeline with expected delivery in Fall 2014 and 2015. The owned developments are all core Class A assets pedestrian to campus in their respective markets and on track to meet their previously announced stabilized development yield in the range of 6.75 - 7.0 percent. The five remaining new owned and mezzanine development projects scheduled to open Fall 2014 totaling $226.7 million are fully preleased at an average of 99.7 percent for the upcoming academic year as of July 18, 2014.

    Also during the quarter, the company commenced construction on U Club on Woodward Phase Two, a $37.1 million community located pedestrian to Florida State University and directly adjacent to the company’s highly successful U Club on Woodward development. The new property will be a redevelopment of The Plaza Apartments which was purchased in August 2013, will contain 496 beds in three-story townhome units and feature a 2,000-square-foot fitness center and resort-style swimming pool.

    Third-Party Services

    The company closed on financing and commenced construction on a third-party on-campus development project containing 492 beds at The University of Toledo. The company expects to earn $2.1 million in development fees throughout the construction period with completion scheduled for Fall 2015.

    Subsequent to quarter end, the company commenced construction on a third-party on-campus development project containing 482 beds at Texas A&M University-Corpus Christi. The project is scheduled for delivery in August 2015 with total estimated fees of $1.5 million to be earned throughout the construction period.

    Capital Markets

    On June 24, the company issued $400 million of senior unsecured notes under its existing shelf registration which are fully and unconditionally guaranteed by the company. These 10-year notes were issued at 99.861 percent of par value with a coupon of 4.125 percent and a yield of 4.142 percent. When including the effect of an interest rate swap entered into earlier in 2014, the effective yield on the notes is 4.269 percent. Interest on the notes is payable semi-annually on January 1 and July 1, with the first payment beginning on January 1, 2015. The notes will mature on July 1, 2024. Moody’s and S&P rated the notes Baa3 and BBB-, respectively. Net proceeds from the transaction totaled $395.3 million and were used to repay the outstanding balance of the company’s revolving credit facility, leaving residual amounts available to fund the current development pipeline, for potential acquisitions of student housing properties, and for general business purposes.

    At-The-Market (ATM) Share Offering Program

    The company did not sell any shares under the ATM Share Offering Program during the second quarter.

    2014 Outlook

    The company is increasing its 2014 outlook to reflect management’s current expectations. Management now anticipates that 2014 FFO will be in the range of $2.34 to $2.41 per fully diluted share and FFOM will be in the range of $2.29 to $2.37 per fully diluted share. The increase primarily reflects the impact of the following items as compared to management’s initial 2014 guidance: (1) reduced interest expense as a result of both the effective interest rate and timing of the 2014 bond issuance partially offset by lower than anticipated capitalized interest on developments; (2) higher than expected net operating income during the first six months of 2014, primarily due to lower than expected operating expenses incurred year-to-date, partially offset by an increase in expected property tax expense; and (3) an increase in the company’s weighted average outstanding shares by 550,000 due to assumed activity under the ATM Share Offering Program through the remainder of 2014. The company is maintaining the leasing assumptions included in its initial 2014 guidance for an occupancy range of 96.0 – 98.0 percent and rental rate growth of 1.75 – 2.25 percent for the 2014/2015 academic year.

    For additional details regarding the company’s updated 2014 outlook, please see pages 18-19 of the Supplemental Analyst Package 2Q 2014. All guidance is based on the current expectations and judgment of the company's management team. A reconciliation of the range provided for projected net income to projected FFO and FFOM for the fiscal year ending December 31, 2014 is included in Table 4.

    Supplemental Information and Earnings Conference Call

    Supplemental financial and operating information, as well as this release, are available in the investor relations section of the American Campus Communities website, www.americancampus.com. In addition, the company will host a conference call to discuss second quarter results and the 2014 outlook on Wednesday, July 23, 2014 at 11 a.m. EDT (10:00 a.m. CDT). Participants from within the U.S. may dial 888-317-6003 passcode 8901269, and participants outside the U.S. may dial 412-317-6061 passcode 8901269 at least 10 minutes prior to the call.

    To listen to the live broadcast, go to www.americancampus.com at least 15 minutes prior to the call so that required audio software can be downloaded. Informational slides in the form of the supplemental analyst package can be accessed via the website. A replay of the conference call will be available beginning one hour after the end of the call until July 31, 2014 by dialing 877-344-7529 or 412-317-0088 conference number 10047884. The replay also will be available for one year at www.americancampus.com. The call will also be available as a podcast on www.REITcafe.com and on the company’s website shortly after the call.

    Non-GAAP Financial Measures

    The National Association of Real Estate Investment Trusts ("NAREIT") currently defines Funds from Operations ("FFO") as net income or loss attributable to common shares computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses from depreciable operating property sales, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. We also believe it is meaningful to present a measure we refer to as FFO-Modified, or FFOM, which reflects certain adjustments related to the economic performance of our on-campus participating properties and excludes impairment and other non-cash charges. FFO and FFOM should not be considered as alternatives to net income or loss computed in accordance with GAAP as an indicator of our financial performance or to cash flow from operating activities computed in accordance with GAAP as an indicator of our liquidity, nor are these measures indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

    The company defines property NOI as property revenues less direct property operating expenses, excluding depreciation, but including allocated corporate general and administrative expenses.

    About American Campus Communities

    American Campus Communities, Inc. is the largest owner and manager of high-quality student housing communities in the United States. The company is a fully integrated, self-managed and self-administered equity real estate investment trust (REIT) with expertise in the design, finance, development, construction management, and operational management of student housing properties. American Campus Communities owns 167 student housing properties containing approximately 102,700 beds. Including its owned and third-party managed properties, ACC’s total managed portfolio consists of 201 properties with approximately 128,700 beds. Visit www.americancampus.com or www.studenthousing.com.

    Forward-Looking Statements

    In addition to historical information, this press release contains forward-looking statements under the federal securities law. These statements are based on current expectations, estimates and projections about the industry and markets in which American Campus operates management's beliefs, and assumptions made by management. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.

       
    Table 1
    American Campus Communities, Inc. and Subsidiaries
    Consolidated Balance Sheets
    (dollars in thousands)
     
    June 30, 2014December 31, 2013
    Assets (unaudited)
     
    Investments in real estate:
    Wholly-owned properties, net $ 5,291,661 $ 5,199,008
    Wholly-owned property held for sale - 14,408
    On-campus participating properties, net   90,480     73,456  
    Investments in real estate, net 5,382,141 5,286,872
     
    Cash and cash equivalents 64,324 38,751
    Restricted cash 35,132 35,451
    Student contracts receivable, net 8,947 9,238
    Other assets   230,449     227,728  
    Total assets$5,720,993   $5,598,040  
     
    Liabilities and equity
    Liabilities:
    Secured mortgage, construction and bond debt $ 1,425,398 $ 1,507,216
    Secured agency facility 87,750 87,750
    Unsecured notes 798,224 398,721
    Unsecured term loans 600,000 600,000
    Unsecured revolving credit facility - 150,700
    Accounts payable and accrued expenses 58,436 65,088
    Other liabilities   113,987     110,036  
    Total liabilities 3,083,795 2,919,511
     
    Redeemable noncontrolling interests 53,054 47,964
     
    Equity:
    American Campus Communities, Inc. and

    Subsidiaries stockholders’ equity:

    Common stock 1,043 1,043
    Additional paid in capital 3,013,401 3,017,631
    Accumulated earnings and dividends (428,676 ) (392,338 )
    Accumulated other comprehensive loss   (7,290 )   (1,435 )
    Total American Campus Communities, Inc. and

    Subsidiaries stockholders’ equity

    2,578,478 2,624,901
    Noncontrolling interests - partially owned properties   5,666     5,664  
    Total equity   2,584,144     2,630,565  
    Total liabilities and equity$5,720,993   $5,598,040  


       
    Table 2
    American Campus Communities, Inc. and Subsidiaries
    Consolidated Statements of Comprehensive Income
    (unaudited, dollars in thousands, except share and per share data)
     
    Three Months Ended June 30,Six Months Ended June 30,
      2014       2013     2014       2013  
    Revenues
    Wholly-owned properties $ 163,056 $ 145,598 $ 335,006 $ 297,873
    On-campus participating properties 4,735 4,703 12,923 12,805
    Third-party development services 1,581 555 1,768 1,034
    Third-party management services 1,997 1,924 3,982 3,633
    Resident services   608     432     1,481     1,029  
    Total revenues171,977153,212355,160316,374
    Operating expenses
    Wholly-owned properties 76,034 68,922 151,842 134,979
    On-campus participating properties 2,780 2,929 5,262 5,433
    Third-party development and management services 2,720 2,422 5,506 4,728
    General and administrative 4,978 4,626 9,352 8,432
    Depreciation and amortization 48,450 47,153 96,625 92,755
    Ground/facility leases   1,582     1,160     3,145     2,363  
    Total operating expenses   136,544     127,212     271,732     248,690  
    Operating income35,43326,00083,42867,684
    Nonoperating income and (expenses)
    Interest income 1,037 947 2,068 1,373
    Interest expense (20,989 ) (19,369 ) (42,079 ) (36,780 )
    Amortization of deferred financing costs (1,461 ) (1,413 ) (2,960 ) (2,724 )
    Other nonoperating expense   -     -     -     (2,800 )
    Total nonoperating expenses   (21,413)   (19,835)   (42,971)   (40,931)
    Income before income taxes and discontinued operations 14,020 6,165 40,457 26,753
    Income tax provision   (289 )   (255 )   (579 )   (510 )
    Income from continuing operations13,7315,91039,87826,243
    Discontinued operations
    Income (loss) attributable to discontinued operations - 2,756 (123 ) 4,804
    Gain from disposition of real estate   -     -     2,843     -  
    Total discontinued operations   -     2,756     2,720     4,804  
    Net income13,7318,66642,59831,047
    Net income attributable to noncontrolling interests   (293 )   (617 )   (762 )   (1,408 )
    Net income attributable to American Campus

    Communities, Inc. and Subsidiaries

    $13,438   $8,049   $41,836   $29,639  
    Other comprehensive income (loss) income
    Change in fair value of interest rate swaps   (4,877 )   4,801     (5,870 )   5,614  
    Comprehensive income$8,561   $12,850   $35,966   $35,253  
    Net income per share attributable to American

    Campus Communities, Inc. and Subsidiaries

    common stockholders

    Basic$0.13   $0.07   $0.39   $0.28  
    Diluted$0.12   $0.07   $0.39   $0.28  
    Weighted-average common shares

    outstanding

    Basic   104,918,131     104,779,159     104,870,167     104,738,522  
    Diluted   105,609,561     105,390,682     105,583,346     105,377,793  


       
    Table 3
    American Campus Communities, Inc. and Subsidiaries
    Calculation of FFO and FFOM
    (unaudited, dollars in thousands, except share and per share data)
     
    Three Months Ended June 30,Six Months Ended June 30,
      2014       2013     2014       2013  
    Net income attributable to American Campus Communities, Inc. and Subsidiaries $ 13,438 $ 8,049 $ 41,836 $ 29,639
    Noncontrolling interests1 293 235 762 617
    Gain from disposition of real estate - - (2,843 ) -
    Real estate related depreciation and amortization   47,884     47,269     95,652     93,799  
    Funds from operations (“FFO”)61,61555,553135,407124,055
     
    Elimination of operations of on-campus participating properties

    Net loss (income) from on-campus participating properties

    880 1,159 (1,991 ) (1,495 )

    Amortization of investment in on-campus participating properties

      (1,228 )   (1,182 )   (2,440 )   (2,356 )
    61,267 55,530 130,976 120,204
    Modifications to reflect operational performance of on-campus participating properties
    Our share of net cash flow2 650 520 1,277 1,059
    Management fees 209 214 584 590
    On-Campus participating properties development fees3   191     -     428     -  
    Impact of on-campus participating properties 1,050 734 2,289 1,649
    Non-cash litigation settlement expense4   -     -     -     2,800  
    Funds from operations-modified ("FFOM”)$62,317   $56,264   $133,265   $124,653  
     
    FFO per share – diluted$0.58   $0.52   $1.27   $1.16  
    FFOM per share – diluted$0.58   $0.53   $1.25   $1.17  
    Weighted average common shares outstanding – diluted   106,947,442     106,637,886     106,923,696     106,624,997  
    1. Excludes $0.4 million and $0.8 million for the three and six months ended June 30, 2013, respectively, of income attributable to the noncontrolling partner in The Varsity, a property purchased in December 2011 from a seller that retained a 20.5% noncontrolling interest in the property. Effective July 1, 2013, the company acquired the noncontrolling partner’s interest and now owns 100% of the property.
    2. 50% of the properties’ net cash available for distribution after payment of operating expenses, debt service (including repayment of principal) and capital expenditures. Represents amounts accrued for the interim periods, which is included in ground/facility leases expense in the consolidated statements of comprehensive income (refer to table 2).
    3. Represents development and construction management fees related to the West Virginia University on-campus participating property, which is currently under construction and scheduled for completion in August 2014. Although the company is including this project in its consolidated financial statements for accounting purposes, similar to our other on-campus participating properties, we view the economic benefit of such properties as limited to the development/construction management fees, property management fees and the 50% share of net cash flow that we receive. As such, for purposes of calculating FFOM, we are recognizing the fees received for this project similar to other third-party development projects.
    4. On April 22, 2013, the company acquired a note and subrogation rights from National Public Finance Guarantee Corporation (formerly known as MBIA Insurance Corp. of Illinois) for an aggregate of $52.8 million, which are secured by a lien on, and the cash flows from, two student housing properties in close proximity to the University of Central Florida and currently under a ground lease with the UCF Foundation. The instruments carry an interest rate of 5.123 percent. The acquisition facilitated the settlement of litigation related to a third-party management agreement for the properties with a GMH entity that was acquired by the company’s 2008 merger with GMH. The acquisition resulted in a non-cash settlement charge of $2.8 million to reflect the fair market valuation of the instruments. Management believes it is appropriate to exclude this non-cash charge from FFOM in order to more accurately present the operating results of the company on a comparative basis during the periods presented.


       
    Table 4
    American Campus Communities, Inc. and Subsidiaries
    2014 Outlook
    (dollars in thousands, except share and per share data)
     
    LowHigh
    Net income$58,200$66,000
    Noncontrolling interests 700 800
    Gain from disposition of real estate (2,850 ) (2,850 )
    Depreciation and amortization   195,300     195,300  
    Funds from operations (“FFO”)251,350259,250
     
    Elimination of operations from on-campus participating properties (9,400 ) (9,600 )

    Modifications to reflect operational performance of on-campus participating properties

      4,500     4,900  
    Funds from operations – modified (“FFOM”)$246,450   $254,550  
     
    Net income per share – diluted$0.54   $0.61  
     
    FFO per share – diluted$2.34   $2.41  
     
    FFOM per share – diluted$2.29   $2.37  
     
    Weighted-average common shares outstanding - diluted   107,602,000     107,602,000  





    American Campus Communities, Inc., Austin

    Ryan Dennison, 512-732-1000

    Source: American Campus Communities, Inc.


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