American Campus Communities, Inc. Reports Second Quarter 2013 Financial Results
American Campus Communities, Inc. Reports Second Quarter 2013 Financial Results
Closes leasing gap, executes on dispositions, reduces guidance
- Increased quarterly FFOM per share by 8.2 percent to $0.53 per fully diluted share or $56.3 million, compared to $0.49 per fully diluted share or $37.2 million for the second quarter prior year. To stimulate leasing velocity for the 2013-2014 academic year, the company incurred $3.1 million in higher than budgeted marketing and leasing expenses during the quarter, which represented $0.03 per fully diluted share.
- Same store wholly-owned net operating income ("NOI") decreased by 1.3 percent compared to the second quarter 2012. While revenues increased 1.8 percent, expenses increased 5.6 percent primarily due to $1.4 million in additional same store marketing and leasing costs as referred to above. Excluding this additional targeted spending, same store wholly-owned NOI would have increased 1.4 percent versus the second quarter 2012.
- Preleased the same store wholly-owned portfolio for the upcoming academic year to 90.8 percent as of July 19, 2013, with an average rental rate increase of 1.1 percent. This compares to 91.8 percent preleased for the same date prior year. The current 100 basis point deficit in preleasing velocity has narrowed 370 basis points from the 470 basis point deficit reported in the company's first quarter earnings release.
- Achieved occupancy for the same store wholly-owned portfolio of 91.6 percent as of June 30, 2013 compared to 92.2 percent for the same date prior year.
- Commenced construction on the first phase of Stanworth Commons, a $78.3 million, two-phase, faculty and staff housing project for Princeton University structured via the American Campus Equity (ACE®) program.
- Commenced construction on the second phase of U Club on Frey, a $25.3 million owned off-campus community at Kennesaw State University.
- Subsequent to the end of the quarter, construction commenced on the $37.5 million owned on-campus ACE project at Texas A&M University.
- Construction commenced subsequent to quarter end on a 567-bed, on-campus participating property project with West Virginia University.
- Subsequent to quarter end, completed the disposition of three properties for a sale price of approximately $117.9 million.
"We are pleased that our summer marketing efforts and previously announced rental rate adjustments have continued to accelerate our leasing velocity. We are now projecting a fall 2013 same store occupancy range of 95.5 to 98.5 percent, as compared to a fall 2012 occupancy of 96.8 percent, along with rental rate growth of 1.1 percent," said Bill Bayless, American Campus CEO. "While the midpoint of our original Fall 2013 occupancy and rental rate guidance assumptions has only been reduced by approximately 200 basis points, or $5.0 million in 2013, we are revising our guidance range after taking into account the following additional variables: An increase in full year budgeted operating expenses of nearly $9.0 million, primarily in two areas - increased marketing expenditures as we attempt to facilitate a strong finish to this leasing season, and stimulate a strong start to our 2014-15 leasing. Secondly, we are increasing our budgeted integration costs including repairs and maintenance associated with our new store acquisition assets, as we position them for long-term value creation. Our new guidance range also reflects a reduction of NOI of nearly $5.5 million due to the timely execution of dispositions. While we are in the midst of a vibrant acquisitions market, the timing of potential acquisitions is likely to occur later in the year, and when coupled with associated acquisition costs, we would not expect a meaningful contribution to earnings in 2013. While these items have a short-term impact on our 2013 results, they set the stage in 2014 and beyond for long-term internal value creation and position us to be an accretive recycler of our own capital as we continue to execute on our vibrant growth strategy in a sector ripe with opportunity via development, acquisitions and consolidation. Bottom-line, our growth thesis remains well intact."
Second Quarter Operating Results
Revenue for the 2013 second quarter totaled $154.4 million, up 53.0 percent from $100.9 million in the second quarter 2012. Operating income for the quarter increased $2.3 million or 9.8 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 2012-2013 academic year. Income from continuing operations decreased by $4.9 million or 45.4 percent over the prior year second quarter primarily due to an increase in interest expense related to loans assumed in connection with 2012 property acquisitions and our recent $400 million offering of senior unsecured notes. FFO for the 2013 second quarter totaled $55.6 million, or $0.52 per fully diluted share, as compared to $36.6 million, or $0.48 per fully diluted share for the same quarter in 2012. FFOM for the 2013 second quarter was $56.3 million, or $0.53 per fully diluted share as compared to $37.2 million, or $0.49 per fully diluted share for the same quarter in 2012. A reconciliation of FFO and FFOM to net income is shown in Table 3.
As of July 19, 2013, the company's same store wholly-owned portfolio was 98.3 percent applied for and 90.8 percent leased for the upcoming academic year compared to 97.9 percent applied for and 91.8 percent leased for the same date prior year, with a 1.1 percent current rental rate increase projected over the in-place rent.
The company is progressing on the construction of its $516.3 million owned development pipeline with expected deliveries in Fall 2013 and 2014. The developments are all core Class A assets pedestrian to campus in their respective markets. The seven new owned development projects scheduled to open Fall 2013 totaling $305.4 million are preleased to an average of 98.2 percent for the upcoming academic year as of July 19, 2013.
The company commenced construction on the first phase of Stanworth Commons, a faculty and staff housing project for Princeton University structured via the ACE program. The project will open in a phased delivery with 127 units slated for summer 2014, followed by 198 units with occupancy expected to begin in the latter half of 2015, for a total project cost of approximately $78.3 million.
Construction commenced on the second phase of U Club on Frey, a $25.3 million owned off-campus community located 0.35 miles from the Kennesaw State University campus. The 408-bed community is scheduled for completion in August 2014 and is an expansion of the highly successful phase one U Club on Frey development, which is currently 99.1 percent preleased for Fall 2013.
Subsequent to the end of the quarter, construction commenced on the $37.5 million owned on-campus ACE project at Texas A&M University. The community will offer 784 beds through a mix of four bedroom/four bathroom flat units and four bedroom/four and one-half bathroom townhome units. The property will also include an 8,500 square-foot community center, a one-to-one parking ratio, popular outdoor amenities, and is targeting delivery in August 2014.
The company commenced construction subsequent to quarter end on a 567-bed, on-campus participating property project with West Virginia University. The community is targeted for delivery in Fall 2014 and will generate third-party development fees of approximately $2.4 million during construction followed by a 50/50 cash flow sharing arrangement initiating at delivery and continuing for an initial term of 40 years with two 10-year extension options.
On April 2, the company issued $400 million of senior unsecured notes under its existing shelf registration. These 10-year notes were issued at 99.659 percent of par value with a coupon of 3.750 percent and a yield of 3.791 percent, and are fully and unconditionally guaranteed by the company. Interest on the notes is payable semi-annually on April 15 and October 15, with the first payment beginning on October 15, 2013. The notes will mature on April 15, 2023. Moody's and S&P rated the notes Baa3 and BBB-, respectively, and Moody's revised the company's rating outlook to positive from stable. Net proceeds from the transaction totaled $394.4 million and were used to repay the outstanding balance of the company's revolving credit facility, repay maturing mortgage debt, and fund the current development pipeline.
At-The-Market (ATM) Share Offering Program
The company did not sell any shares under the ATM Share Offering Program during the second quarter.
The company is updating its 2013 outlook primarily to reflect the impact of the following items as compared to management's initial 2013 outlook: (1) dispositions totaling $157 million that have closed, or are expected to close this month, resulting in the loss of $5.5 million in anticipated net operating income for 2013 without offsetting closed acquisitions in 2013 to date; (2) additional annual marketing and leasing related costs of $6.5 million to stimulate leasing velocity; and (3) a decrease in initial projected rental rates from 2.1 to 1.1 percent, and a 100 basis point decrease in the midpoint of same store expected occupancy for the 2013-2014 academic year. Based upon these and other factors, management anticipates that both 2013 FFO and FFOM will be in the range of $2.20 to $2.26 per fully diluted share.
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, 2013, and other assumptions utilized, 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 2013 outlook on Wednesday, July 24, 2013 at 11 a.m. EDT (10:00 a.m. CDT). Participants from within the U.S. may dial 888-317-6003 passcode 8361759, and participants outside the U.S. may dial 412-317-6061 passcode 8361759 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 August 1, 2013 by dialing 877-344-7529 or 412-317-0088 conference number 10030508. 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 161 student housing properties containing approximately 98,500 beds. Including its owned and third-party managed properties, ACC's total managed portfolio consists of 194 properties with approximately 123,700 beds. Visit www.americancampus.com or www.studenthousing.com.
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.
|American Campus Communities, Inc. and Subsidiaries|
|Consolidated Balance Sheets|
|(dollars in thousands)|
|June 30, 2013||December 31, 2012|
|Investments in real estate:|
|Wholly-owned properties, net||$||4,867,882||$||4,871,376|
|Wholly-owned properties held for sale||114,940||-|
|On-campus participating properties, net||55,698||57,346|
|Investments in real estate, net||5,038,520||4,928,722|
|Cash and cash equivalents||25,541||21,454|
|Student contracts receivable, net||8,323||14,122|
|Liabilities and equity|
|Secured mortgage, construction and bond debt||$||1,500,412||$||1,509,105|
|Unsecured term loan||350,000||350,000|
|Unsecured revolving credit facility||97,200||258,000|
|Secured agency facility||104,000||104,000|
|Accounts payable and accrued expenses||49,635||56,046|
|Redeemable noncontrolling interests||52,331||57,534|
|American Campus Communities, Inc. and Subsidiaries
|Additional paid in capital||3,006,518||3,001,520|
|Accumulated earnings and dividends||(391,468||)||(347,521||)|
|Accumulated other comprehensive loss||(1,047||)||(6,661||)|
|Total American Campus Communities, Inc. and Subsidiaries
|Noncontrolling interests - partially owned properties||28,821||28,673|
|Total liabilities and equity||$||5,291,645||$||5,118,962|
|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,|
|On-campus participating properties||4,703||4,712||12,805||12,679|
|Third-party development services||555||3,866||1,034||5,960|
|Third-party management services||1,924||1,638||3,633||3,396|
|On-campus participating properties||2,929||2,801||5,433||5,296|
|Third-party development and management services||2,422||2,626||4,728||5,411|
|General and administrative||4,626||4,638||8,432||8,178|
|Depreciation and amortization||47,477||23,266||93,387||46,435|
|Total operating expenses||128,209||77,038||250,588||151,576|
|Nonoperating income and (expenses)|
|Amortization of deferred financing costs||(1,416||)||(967||)||(2,730||)||(1,954||)|
|Income from unconsolidated joint ventures||-||-||-||444|
|Other nonoperating income||-||-||(2,800||)||(122||)|
|Total nonoperating expenses||(20,072||)||(12,922||)||(41,401||)||(25,918||)|
|Income before income taxes and discontinued operations||6,147||10,951||26,807||29,145|
|Income tax provision||(255||)||(156||)||(510||)||(312||)|
|Income from continuing operations||5,892||10,795||26,297||28,833|
|Income attributable to discontinued operations||2,774||2,129||4,750||4,896|
|Gain from disposition of real estate||-||83||-||83|
|Total discontinued operations||2,774||2,212||4,750||4,979|
|Net income attributable to noncontrolling interests||(617||)||(679||)||(1,408||)||(1,458||)|
Net income attributable to American Campus
Communities, Inc. and Subsidiaries
|Other comprehensive income (loss)|
|Change in fair value of interest rate swaps||4,801|| <
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