AMERICAN CAMPUS COMMUNITIES, INC. Forward-looking Statements
This report contains forward-looking statements within the meaning of the
federal securities laws. We caution investors that any forward-looking
statements presented in this report, or which management may make orally or in
writing from time to time, are based on management's beliefs and assumptions
made by, and information currently available to, management. When used, the
words "anticipate," "believe," "expect," "intend," "may," "might," "plan,"
"estimate," "project," "should," "will," "result" and similar expressions, do
not relate solely to historical matters and are intended to identify
forward-looking statements. Such statements are subject to risks, uncertainties
and assumptions and may be affected by known and unknown risks, trends,
uncertainties and factors that are beyond our control. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. We caution you that forward-looking statements are not guarantees
of future performance and will be impacted by actual events when they occur
after we make such statements. We expressly disclaim any responsibility to
update forward-looking statements, whether as a result of new information,
future events or otherwise. Accordingly, investors should use caution in relying
on past forward-looking statements, which are based on results and trends at the
time they were made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results,
performance or achievements to differ materially from those expressed or implied
by forward-looking statements include, among others, the following: general
risks affecting the real estate industry; risks associated with changes in
University admission or housing policies; risks associated with the availability
and terms of financing and the use of debt to fund acquisitions and
developments; failure to manage effectively our growth and expansion into new
markets or to integrate acquisitions successfully; risks and uncertainties
affecting property development and construction; risks associated with downturns
in the national and local economies, volatility in capital and credit markets,
increases in interest rates, and volatility in the securities markets; costs of
compliance with the Americans with Disabilities Act and other similar laws;
potential liability for uninsured losses and environmental contamination; risks
associated with our Company's potential failure to qualify as a REIT under the
Internal Revenue Code of 1986 (the "Code"), as amended, and possible adverse
changes in tax and environmental laws; risks related to the novel coronavirus
disease ("COVID-19") pandemic as outlined in Part II, Item 1A herein; and the
other factors discussed in the "Risk Factors" contained in Item 1A of our Form
10-K for the year ended December 31, 2019 .
COVID-19, which was characterized on March 11, 2020 by the World Health
Organization as a pandemic, has currently resulted in a widespread health
crisis, which has adversely affected international, national and local economies
and financial markets generally, and has had an unprecedented effect on many
businesses including the student housing industry. The discussions below,
including without limitation statements with respect to outlooks of future
operating performance and liquidity, are subject to the future effects of the
COVID-19 pandemic and the global responses to curb its spread, which continue to
evolve daily. As such, as described in Part II, Item 1A, Risk Factors, the full
magnitude of the pandemic and its ultimate effect on our results of operations,
cash flows, financial condition, and liquidity for the year ending December 31,
2020 , as well as for future years, is uncertain at this time.
Our Company and Our Business
Overview
We are the one of the largest owners, managers, and developers of high quality student housing properties inthe United States . We are a fully integrated, self-managed, and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing, and management of student housing properties. Refer to Note 1 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1 for additional information regarding our business objectives and investment strategies. Refer to Note 13 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1 for information about our operating segments. Property Portfolio We believe that the ownership and operation of student housing communities in close proximity to selected colleges and universities presents an attractive long-term investment opportunity for our investors. We intend to continue to execute our strategy of identifying existing differentiated, typically highly amenitized, student housing communities or development opportunities in close proximity to university campuses with high barriers to entry which are projected to experience substantial increases in enrollment and/or are under-serviced in terms of existing on and/or off-campus student housing. 25 --------------------------------------------------------------------------------
Below is a summary of our property portfolio as of
Properties Beds
Owned operating properties:
Off-campus properties 126 70,223
On-campus ACE (1) (2) 31 25,131
Subtotal - operating properties 157 95,354
Owned properties under development:
On-campus ACE (2) 3 11,296
Subtotal - properties under development 3 11,296
Total owned properties 160 106,650
On-campus participating properties 6 5,230
Total owned property portfolio 166 111,880
Managed properties 35 25,966
Total property portfolio 201 137,846
(1) Includes two properties at
expect to be refinanced under the existing on-campus participating
structure.
(2) Includes 33 properties operated under ground/facility leases with 16university systems and one property operated under a ground/facility lease
with Walt Disney World® Resort.
Leasing Results
Our financial results for the year endedDecember 31, 2020 are impacted by the results of our annual leasing process for the 2019/2020 and 2020/2021 academic years. As ofSeptember 30, 2019 , the beginning of the 2019/2020 academic year, occupancy at our 2020 same store properties was 97.4% with a rental rate increase of 1.4% compared to the prior academic year, and occupancy at our total owned property portfolio (including 2019 development deliveries) was also 97.4%. As previously discussed, the COVID-19 pandemic has had an unprecedented effect on the student housing industry, including many of the universities in markets where the Company owns properties shifting to an online delivery method for academic instruction in order to accommodate shelter in place orders issued by state and local municipalities. In response to such orders, the Company has adapted its marketing strategies to conduct leasing activities for the upcoming 2020/2021 academic year through virtual channels. Management currently anticipates slower leasing velocity during the upcoming months until such shelter in place orders are lifted, and the ultimate impact of the pandemic on the annual leasing results for the 2020/2021 academic year, if any, is unknown at this time. Development
AtMarch 31, 2020 , we were in the process of constructing three on-campus ACE properties, including one property at Walt Disney World® Resort housing college students participating in the Disney student internship program (the "Disney College Program"), which will be delivered in multiple phases from 2020 to 2023. These properties are summarized in the table below: Primary University Estimated Total Costs Scheduled Project Location Served Project Type Beds Project Cost Incurred Occupancy
Disney College Orlando, Walt Disney May & Aug Program Phases I-II FL World® Resort ACE 1,627$ 108,500 $ 96,113 2020 (1) Currie Hall Phase Los Univ. of II Angeles, Southern ACE 272 42,000 32,531 August 2020 CA California San San Francisco Holloway Residences Francisco, State Univ. ACE 584 129,200 107,475 August 2020 CA SUBTOTAL - 2020 DELIVERIES 2,483$ 279,700 $ 236,119
Disney College Orlando, Walt Disney Jan, May & Program Phases FL World® Resort ACE 3,369$ 190,400 $ 130,262 Aug 2021 III-V (1) SUBTOTAL - 2021 DELIVERIES 3,369$ 190,400 $ 130,262 Disney College Orlando, Walt Disney Jan, May & Program Phases FL World® Resort ACE 3,235$ 193,000 $ 43,580 Aug 2022 VI-VIII (1) SUBTOTAL - 2022 DELIVERIES 3,235$ 193,000 $ 43,580 Disney College Orlando, Walt Disney Jan & May Program Phases IX-X FL World® Resort ACE 2,209$ 122,700 $ 20,506 2023 (1) SUBTOTAL - 2023 DELIVERIES 2,209$ 122,700 $ 20,506
(1) In response to the recent developments related to COVID-19,
World ® Resort has closed and has not announced a reopening date. Although
completion is currently anticipated to occur as originally scheduled, the
ultimate occupancy date and levels will depend on the reopening date. As
such, the effect on the project's initial operating results cannot be
determined.
26-------------------------------------------------------------------------------- Although the Company currently anticipates completing the above projects on time and within budget, the project locations are currently subject to "shelter in place" or "stay at home" orders adopted by state and local authorities in response to the COVID-19 pandemic. Some of these orders may adversely affect the timely completion and final project costs of some or all of our projects under development if, for example, we are required to temporarily cease construction entirely, experience delays in obtaining governmental permits and authorizations, or experience disruption in the supply of materials or labor.
As ofMarch 31, 2020 , we were under contract on three third-party development projects that are currently under construction and whose fees total$14.2 million . As ofMarch 31, 2020 , fees of approximately$4.5 million remained to be earned by the Company with respect to these projects, which have scheduled completion dates in 2020 and 2021. Although the completion of the third-party development projects currently under construction is anticipated to occur as originally scheduled, the timely completion of the projects is subject to any future shelter in place or related orders issued by state and/or local municipalities affecting construction sites. To the extent COVID-19 related orders and/or events delay the construction of such projects, the timing of the recognition of third-party development revenue could also be impacted. Critical Accounting Policies
There have been no material changes to the Company's critical accounting
policies disclosed in the Company's Form 10-K for the year ended
27
--------------------------------------------------------------------------------Results of Operations
COVID 19, which was characterized onMarch 11, 2020 by theWorld Health Organization as a pandemic, did not materially affect the Company's results of operations for the three months endedMarch 31, 2020 . However, for the reasons described previously, the Company is unable to predict the full magnitude of the pandemic and its effect on our results of operations for the remainder of the year endingDecember 31, 2020 , and future years. The most significant factors affecting the Company's future results of operations are: (1) the level of lease terminations and rent refunds and abatements granted to student and commercial tenants; (2) the economic hardship experienced by student and commercial tenants and its ultimate effect on rent collections and thus the provision for uncollectible accounts; (3) the ultimate outcome of the Company's leasing efforts for the 2020/2021 academic year; (4) the impact of any stimulus payments received by the Company, our tenants, and/or our University partners under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"); and (5) any increase in, or reduction to, operating expenses as a result of the pandemic. Comparison of the Three Months EndedMarch 31, 2020 andMarch 31, 2019 The following table presents our results of operations for the three months endedMarch 31, 2020 and 2019, including the amount and percentage change in these results between the two periods. Three Months Ended March 31, 2020 2019 Change ($) Change (%) Revenues: Owned properties$ 232,091 $ 224,419 $ 7,672 3.4 % On-campus participating properties 10,709 11,448 (739 ) (6.5 )% Third-party development services 2,055 3,171 (1,116 ) (35.2 )% Third-party management services 3,829 2,311 1,518 65.7 % Resident services 720 782 (62 ) (7.9 )% Total revenues 249,404 242,131 7,273 3.0 % Operating expenses: Owned properties 92,474 92,169 305 0.3 % On-campus participating properties 3,366 3,957 (591 ) (14.9 )% Third-party development and management services 6,207 4,186 2,021 48.3 % General and administrative 10,158 7,315 2,843 38.9 % Depreciation and amortization 66,169 68,755 (2,586 ) (3.8 )% Ground/facility leases 4,069 3,549 520 14.7 % Gain from disposition of real estate (48,525 ) - (48,525 ) 100.0 % Provision for impairment - 3,201 (3,201 ) (100.0 )% Total operating expenses 133,918 183,132 (49,214 ) (26.9 )% Operating income 115,486 58,999 56,487 95.7 % Nonoperating income (expenses): Interest income 851 926 (75 ) (8.1 )% Interest expense (27,783 ) (27,061 ) (722 ) 2.7 % Amortization of deferred financing costs (1,287 ) (1,132 ) (155 ) 13.7 % Loss from early extinguishment of debt (4,827 ) - (4,827 ) 100.0 % Total nonoperating expenses (33,046 ) (27,267 ) (5,779 ) 21.2 % Income before income taxes 82,440 31,732 50,708 159.8 % Income tax provision (379 ) (364 ) (15 ) 4.1 % Net income 82,061 31,368 50,693 161.6 % Net income attributable to noncontrolling interests (1,206 ) (1,728 ) 522 (30.2 )% Net income attributable toACC, Inc. and Subsidiaries common stockholders$ 80,855 $ 29,640 $ 51,215 172.8 % 28
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Same Store and New Property Operations
We define our same store property portfolio as owned properties that were owned and operating for both of the full years endedDecember 31, 2020 andDecember 31, 2019 , which are not conducting or planning to conduct substantial development, redevelopment, or repositioning activities, and are not classified as held for sale as ofMarch 31, 2020 . It also includes the full operating results of properties owned through joint ventures in which the company has a controlling financial interest and which are consolidated for financial reporting purposes. Same store revenues are defined as revenues generated from our same store portfolio and consist of rental revenue earned from student leases as well as other income items such as utility income, damages, parking income, summer conference rent, application and administration fees, income from retail tenants, the provision for uncollectible accounts, and income earned by one of our TRS entities from ancillary activities such as the provision of food services. Same store operating expenses are defined as operating expenses generated from our same store portfolio and include usual and customary expenses incurred to operate a property such as payroll, maintenance, utilities, marketing, general and administrative costs, insurance, and property taxes. Same store operating expenses also include an allocation of payroll and other administrative costs related to corporate management and oversight. A reconciliation of our same store, new property and sold/other property operations to our consolidated statements of comprehensive income is set forth below: Same Store Properties New Properties Sold Properties/Other(1) Total - All Properties Three Months Ended Three Months Ended Three Months Ended Three Months Ended March 31, March 31, March 31, March 31, 2020 2019 2020 2019 2020 2019 2020 2019 Number of properties 152 152 5 - 1 5 (2) 158 157 Number of beds 92,195 92,195 3,159 - 901 2,911 96,255 95,106 Revenues (3)$ 219,767 $ 218,231 $ 10,343 $ 221 $ 2,701 $ 6,749 $ 232,811 $ 225,201 Operating expenses 88,113 88,120 3,291 525 1,070 3,524 92,474 92,169
(1) Does not include the allocation of payroll and other administrative costs
related to corporate management and oversight. Also includes recurring
professional fees related to the operation of the ACC / Allianz Joint
Venture.
(2) Includes properties sold in 2019 and 2020 and one property transferred to
the lender in
(3) Includes revenues which are reflected as resident services revenue on the
accompanying consolidated statements of comprehensive income.
Same Store Properties : The increase in revenue from our same store properties was primarily due to an increase in average rental rates for the 2019/2020 academic year, as well as an increase in weighted average occupancy from 96.9% during the three months endedMarch 31, 2019 to 97.0% during the three months endedMarch 31, 2020 . The increase in operating expenses for our same store properties was primarily due to anticipated increases in payroll expenses due to increases inFair Labor Standards Act ("FLSA") minimum exempt status salaries and statutory minimum wage increases in numerous states.
Same Store OCPP Properties : As ofMarch 31, 2020 , we had six on-campus participating properties containing 5,230 beds. Revenues from these properties decreased by$0.7 million , from$11.4 million for the three months endedMarch 31, 2019 , to$10.7 million for the three months endedMarch 31, 2020 . This decrease was primarily due to an increase in the provision for uncollectible accounts, offset by an increase in average rental rates coupled with an increase in average occupancy from 95.8% for the three months endedMarch 31, 2019 , to 98.3% for the three months endedMarch 31, 2020 . Operating expenses at these properties decreased by$0.6 million , from$4.0 million for the three months endedMarch 31, 2019 , to$3.4 million for the three months endedMarch 31, 2020 , primarily due to transaction costs incurred in the prior year associated with the conversion of an owned property to the OCPP structure. 29 --------------------------------------------------------------------------------
Third-Party Development Services Revenue
Third-party development services revenue decreased by approximately$1.1 million , from$3.2 million during the three months endedMarch 31, 2019 , to$2.1 million for the three months endedMarch 31, 2020 . The decrease was primarily due to the closing of bond financing and commencement of construction of the Calhoun Hall project atDrexel University during the prior year, which contributed approximately$1.3 million in revenue for the three months endedMarch 31, 2019 . Development services revenues are dependent on our ability to successfully be awarded such projects, the amount of the contractual fee related to the project and the timing and completion of the development and construction of the project. In addition, to the extent projects are completed under budget, we may be entitled to a portion of such savings, which are recognized as revenue when performance has been agreed upon by all parties, or when performance has been verified by an independent third-party.
Third-Party Management Services Revenue
Third-party management services revenue increased by approximately$1.5 million , from$2.3 million during the three months endedMarch 31, 2019 , to$3.8 million for the three months endedMarch 31, 2020 . The increase is primarily due to reimbursed payroll and other costs from the Disney College Program management contract which began inApril 2019 . As facilities manager, the Company is responsible for the operations and maintenance of the projects. Because of the company's role in funding payroll costs for on-site personnel at the properties, as well as other miscellaneous costs, accounting guidance requires the management fee for this project to be recorded on a gross basis in the Company's consolidated financial statements. Accordingly, both management services revenue and third-party management services expenses for the three months endedMarch 31, 2020 include approximately$1.2 million in such reimbursed costs. The remainder of the increase in revenue as compared to the prior year is due to newly executed contracts, net of contracts discontinued during the respective periods.
Third-party development and management services expenses increased by approximately$2.0 million , from$4.2 million during the three months endedMarch 31, 2019 , to$6.2 million for the three months endedMarch 31, 2020 . The increase is primarily due to$1.1 million of payroll costs from the Disney College Program management contract described above, as well as an increase in the provision for uncollectable accounts related to accounts receivable from third-party development and management projects.
General and Administrative
General and administrative expenses increased by approximately$2.9 million , from$7.3 million during the three months endedMarch 31, 2019 , to$10.2 million for the three months endedMarch 31, 2020 . The increase was primarily due to$1.1 million in litigation settlement expenses incurred during the three months endedMarch 31, 2020 , as well as additional expenses incurred in connection with enhancements to our operating systems platform and other general inflationary factors.
Depreciation and Amortization
Depreciation and amortization decreased by approximately$2.6 million , from$68.8 million during the three months endedMarch 31, 2019 , to$66.2 million for the three months endedMarch 31, 2020 . This decrease was primarily due to an approximate$4.2 million decrease related to assets at our same store properties that became fully depreciated or amortized over the last year, a decrease of approximately$1.7 million related to properties sold in 2019 and 2020, and a decrease of approximately$0.3 million in depreciation of corporate assets. These decreases were offset by an increase of approximately$3.6 million related to the completion of construction and opening of owned development properties in Fall 2019. Ground/Facility Leases Ground/facility leases expense increased by approximately$0.6 million from$3.5 million during the three months endedMarch 31, 2019 , to$4.1 million for the three months endedMarch 31, 2020 . This increase was primarily due to ACE development projects that completed construction and opened for operations in Fall 2019 and increased variable payments at various ACE same store properties. 30 --------------------------------------------------------------------------------
Gain from Disposition of Real Estate
During the three months endedMarch 31, 2020 , we sold one owned property containing 901 beds, resulting in a net gain from disposition of real estate of approximately$48.5 million . Refer to Note 4 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for additional details regarding our recent disposition transaction.
Provision for Impairment
During the three months endedMarch 31, 2019 , we recorded an impairment charge of approximately$3.2 million for one owned property serving students attendingFlorida A&M University , which was classified as held for sale as ofMarch 31, 2019 and was sold inMay 2019 .
Interest Expense
Interest expense increased by approximately$0.7 million , from$27.1 million during the three months endedMarch 31, 2019 , to$27.8 million for the three months endedMarch 31, 2020 . The increase was primarily due to$3.4 million of additional interest incurred related to our offerings of unsecured notes inJune 2019 andJanuary 2020 , net of unsecured notes repaid inJanuary 2020 that were originally scheduled to mature inOctober 2020 . This increase was offset by: (i) a$0.9 million decrease in default interest related to a property that was transferred to the lender in settlement of the property's mortgage loan inJuly 2019 ; (ii) a$0.5 million decrease in interest on our term loan facility due to interest rate swaps executed in November andDecember 2019 ; (iii) a$0.5 million increase in capitalized interest related to the timing of construction activities for our owned development pipeline; (iv) a$0.4 million decrease related to mortgage loans paid off in 2019 and 2020; and (v) an$0.3 million decrease in interest expense related to the timing of borrowings under our unsecured revolving credit facility during the respective three-month periods.
Loss from Early Extinguishment of Debt
During the three months endedMarch 31, 2020 , we recognized a$4.8 million loss on the extinguishment of debt related to the early redemption of our$400 million 3.35% Senior Notes dueOctober 2020 . The redemption was funded using net proceeds from theOperating Partnership's closing of a$400 million offering of senior unsecured notes under its existing shelf registration inJanuary 2020 . Refer to Note 6 in the accompanying Notes to Consolidated Financial Statements in Item 1 for a detailed discussion of this transaction.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests represents consolidated joint venture partners' share of net income, as well as net income allocable to holders ofOperating Partnership units. Net income attributable to noncontrolling interests decreased by$0.5 million , from$1.7 million for the three months endedMarch 31, 2019 to$1.2 million for the three months endedMarch 31, 2020 . This decrease is primarily due to the purchase of the remaining ownership interests in properties held in a joint venture as part of the Core Transaction, as well as decreased operating performance at certain properties held through joint ventures.
Liquidity and Capital Resources
Cash Balances and Cash Flows
As ofMarch 31, 2020 , we had$208.9 million in cash and cash equivalents and restricted cash as compared to$81.3 million in cash and cash equivalents and restricted cash as ofDecember 31, 2019 . Restricted cash primarily consists of escrow accounts held by lenders, resident security deposits as required by law in certain states, and funds held in escrow in connection with potential acquisition and development opportunities. The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our consolidated statements of cash flows included in Item 1. Operating Activities: For the three months endedMarch 31, 2020 , net cash provided by operating activities was approximately$90.8 million , as compared to approximately$80.6 million for the three months endedMarch 31, 2019 , an increase of$10.2 million . This increase in cash flows was due to operating cash flows from the completion of construction of owned development properties and presale development properties in 2019 as well as the timing of collections of student contracts receivable. This increase was offset by the timing of property tax payments for owned properties and the disposition of properties in 2019 and 2020. 31
-------------------------------------------------------------------------------- Investing Activities: For the three months endedMarch 31, 2020 , net cash provided by investing activities totaled approximately$48.0 million as compared to net cash utilized by investing activities of$116.9 million for the three months endedMarch 31, 2019 . The$164.9 million increase in cash provided by investing activities was primarily a result of$146.1 million in proceeds from the disposition of one property during the three months endedMarch 31, 2020 as compared to none in the prior year, and$20.4 million decrease in cash used to fund the construction of our owned development properties. These increases were partially offset by a$1.4 million increase in cash used to fund capital expenditures at our owned and on-campus participating properties. Financing Activities: For the three months endedMarch 31, 2020 , net cash utilized by financing activities totaled approximately$11.3 million as compared to net cash provided by financing activities of$9.6 million for the three months endedMarch 31, 2019 . The$20.9 million increase in cash utilized by financing activities was primarily a result of the following: (i) the$404.2 million pay-off of unsecured notes including costs associated with the early extinguishment of the notes; (ii) the purchase of the remaining ownership interest in two properties for$77.2 million ; (iii) the$34.2 million pay-off of mortgage debt; (iv) a$14.2 million decrease due to proceeds from construction loans in the prior year period; (v) a$2.8 million increase in payments of debt issuance costs; and (vi) a$1.6 million increase in distributions to common and restricted stockholders. These increases in cash utilized were partially offset by: (i)$399.2 million in proceeds from the issuance of unsecured notes inJanuary 2020 and (ii) a$113.9 million increase in net proceeds on our revolving credit facility.
Liquidity Needs, Sources and Uses of Capital
As previously discussed, the ultimate effect of the COVID-19 pandemic on the student housing industry generally, and the Company specifically, is uncertain at this time. As such, the Company is unable to predict the full magnitude of the pandemic and its effect on our future cash flows and liquidity needs. The most significant factors affecting our future results are outlined above under Results of Operations. As ofMarch 31, 2020 , our short-term liquidity needs included, but were not limited to, the following: (i) anticipated distribution payments to our common and restricted stockholders totaling approximately$260.8 million based on an assumed annual cash distribution of$1.88 per share and the number of our shares outstanding as ofMarch 31, 2020 ; (ii) anticipated distribution payments to ourOperating Partnership unitholders totaling approximately$0.9 million based on an assumed annual distribution of$1.88 per common unit and a cumulative preferential per annum cash distribution rate of 5.99% on our Preferred OP Units based on the number of units outstanding as ofMarch 31, 2020 ; (iii) estimated development costs over the next 12 months totaling approximately$255.4 million for our owned properties currently under construction; (iv) potential future developments, property or land acquisitions; and (v) recurring capital expenditures. We expect to meet our short-term liquidity requirements by: (i) utilizing current cash on hand and net cash provided by operations; (ii) borrowing under our existing revolving credit facility, which has availability of$390.3 million as ofMarch 31, 2020 ; (iii) accessing the unsecured bond market; (iv) exercising debt extension options to the extent they are available; (v) issuing securities, including common stock, under our ATM Equity Program discussed more fully in Note 7 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, or otherwise; and (vi) potentially disposing of properties and/or entering into joint venture arrangements, depending on market conditions. Our ability to obtain additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to the real estate industry, our credit ratings and credit capacity, as well as the perception of lenders regarding our long or short-term financial prospects. We may seek additional funds to undertake initiatives not contemplated by our business plan or obtain additional cushion against possible shortfalls. We also may pursue additional financing as opportunities arise. Future financings may include a range of different sizes or types of financing, including the incurrence of additional secured debt and the sale of additional debt or equity securities. These funds may not be available on favorable terms or at all. Our ability to obtain additional financing depends on several factors, including future market conditions, our success or lack of success in penetrating our markets, our future creditworthiness, and restrictions contained in agreements with our investors or lenders, including the restrictions contained in the agreements governing our unsecured credit facility and unsecured notes. These financings could increase our level of indebtedness or result in dilution to our equity holders. Although the Company's liquidity position and cash flows were unaffected by the COVID-19 pandemic as of and for the quarter endedMarch 31, 2020 , the impact of the pandemic on global capital markets and the related effect on the Company's stock price has introduced additional economic uncertainty which could affect our ability to obtain additional financing to meet short-term and/or long-term liquidity needs. 32 --------------------------------------------------------------------------------
Distributions
We are required to distribute 90% of our REIT taxable income (excluding capital gains) on an annual basis in order to qualify as a REIT for federal income tax purposes. Distributions to common stockholders are at the discretion of the Board of Directors. We may use borrowings under our unsecured revolving credit facility to fund distributions. The Board of Directors considers a number of factors when determining distribution levels, including market factors and our Company's performance in addition to REIT requirements. OnApril 29, 2020 , our Board of Directors declared a distribution per share of$0.47 , which will be paid onMay 22, 2020 to all common stockholders of record as ofMay 11, 2020 . At the same time, theOperating Partnership will pay an equivalent amount per unit to holders of Common OP Units, as well as the quarterly cumulative preferential distribution to holders of Preferred OP Units. Although the ultimate magnitude of the impact of COVID-19 on the Company's cash flows is uncertain, any curtailed or deferred tenant demand, lease terminations, rent refunds and abatements, and increased uncollectible accounts we experience could materially adversely affect our cash flows from operations, and thus our ability to make distributions to stockholders.
Indebtedness
The amounts below exclude net unamortized debt premiums and discounts related to
mortgage loans assumed in connection with property acquisitions, original issue
discounts ("OID"s), and deferred financing costs (see Note 6 in the accompanying
Notes to the Consolidated Financial Statements contained in Item 1). A summary
of our consolidated indebtedness as of March 31, 2020 is as follows:
Weighted
Weighted Average Average
Amount % of Total Rates (1) Maturities
Secured $ 746,483 21.2 % 4.5 % 6.2 Years
Unsecured 2,809,700 78.8 % 3.2 % 5.0 Years
Total consolidated debt $ 3,556,183 100.0 % 3.4 % 5.3 Years
Fixed rate debt
Secured
Project-based taxable bonds $ 23,215 0.7 % 7.6 % 4.6 Years
Mortgage 720,361 20.4 % 4.4 % 6.2 Years
Unsecured
April 2013 Notes 400,000 11.2 % 3.8 % 3.0 Years
June 2014 Notes 400,000 11.2 % 4.1 % 4.3 Years
October 2017 Notes 400,000 11.2 % 3.6 % 7.6 Years
June 2019 Notes 400,000 11.2 % 3.3 % 6.3 Years
January 2020 Notes 400,000 11.2 % 2.9 % 9.8 Years
Term loans 200,000 5.7 % 2.5 % 2.2 Years
Total - fixed rate debt 2,943,576 82.8 % 3.7 % 5.9 Years
Variable rate debt:
Secured
Mortgage 2,907 0.1 % 3.3 % 25.3 Years
Unsecured
Unsecured revolving credit
facility 609,700 17.1 % 2.1 % 2.0 Years
Total - variable rate debt 612,607 17.2 % 2.1 % 2.1 Years
Total consolidated debt $ 3,556,183 100.0 % 3.4 % 5.3 Years
(1) Represents stated interest rate and does not include the effect of the
amortization of deferred financing costs, debt premiums and discounts, OIDs,
and interest rate swap terminations.
As discussed previously, the Company's ability to service its debt and related financial obligations was unaffected by the COVID-19 pandemic as ofMarch 31, 2020 ; however, the ultimate magnitude of the pandemic on our future cash flows and liquidity position is uncertain at this time. While the Company was in compliance with all debt covenants for both secured and unsecured indebtedness as ofMarch 31, 2020 , the economic disruption caused by the COVID-19 pandemic could affect our future ability to remain in compliance with our debt covenants, depending on the ultimate impact to the valuation of collateral and any additional financing we obtain to meet our liquidity needs. The specific covenants that management is closely monitoring as the situation evolves 33 -------------------------------------------------------------------------------- include the debt to total asset value and fixed charge coverage requirements per the Company's unsecured revolving credit facility. As it relates to the debt to total asset value covenant, which is highly dependent on net operating income levels of the Company's operating properties, management estimates that net operating income at such properties could decrease in the next twelve months by up to approximately$165 million before the Company would be in the position of potentially violating the covenant. As it relates to the fixed charge coverage requirement, which is highly dependent upon a specific measure of Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), as defined in the related agreement, management estimates that the EBITDA measure for the next twelve months could decrease by up to approximately$280 million before the Company would be in the position of potentially violating the covenant. In addition, our credit ratings given by Moody's andStandard & Poor's are based on a number of factors, which include their assessment of our financial strength, liquidity, capital structure, asset quality and sustainability of cash flow and earnings. If we are unable to maintain our current credit ratings due to the COVID-19 pandemic or other changes in market conditions, the cost of funds under our credit facilities and our liquidity and access to capital markets would be adversely affected. The Company has a BBB credit rating with a stable outlook fromMoody's Investors Services, Inc. and a Baa2 credit rating with a negative outlook from Standard & Poor'sRating Group . 34 --------------------------------------------------------------------------------
Funds From Operations ("FFO")
The National Association of Real Estate Investment Trusts ("NAREIT") currently defines FFO as net income or loss attributable to common shares computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses from depreciable operating property sales, impairment charges and real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO excludes GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. We therefore believe that FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, and interest costs, among other items, providing perspective not immediately apparent from net income. We compute FFO in accordance with standards established by theBoard of Governors of NAREIT in itsDecember 2018 White Paper, which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. We also believe it is meaningful to present a measure we refer to as FFO-Modified, or FFOM, which reflects certain adjustments related to the economic performance of our on-campus participating properties, the elimination of transaction costs, and other items, as we determine in good faith. Under our participating ground leases, we and the participating university systems each receive 50% of the properties' net cash available for distribution after payment of operating expenses, debt service (which includes significant amounts towards repayment of principal), and capital expenditures. A substantial portion of our revenues attributable to these properties is reflective of cash that is required to be used for capital expenditures and for the amortization of applicable property indebtedness. These amounts do not increase our economic interest in these properties or otherwise benefit us since our interest in the properties terminates upon the repayment of the applicable property indebtedness. Therefore, unlike the ownership of our owned properties, the unique features of our ownership interest in our on-campus participating properties cause the value of these properties to diminish over time. For example, since the ground/facility leases under which we operate the participating properties require the reinvestment from operations of specified amounts for capital expenditures and for the repayment of debt while our interest in these properties terminates upon the repayment of the debt, such capital expenditures do not increase the value of the property to us and mortgage debt amortization only increases the equity of the ground lessor. Accordingly, we believe it is meaningful to modify FFO to exclude the operations of our on-campus participating properties and to consider their impact on our performance by including only that portion of our revenues from those properties that are reflective of our share of net cash flow and the management fees that we receive, both of which increase and decrease with the operating performance of the properties. This narrower measure of performance measures our profitability for these properties in a manner that is similar to the measure of our profitability from our third-party services business where we similarly incur no initial or ongoing capital investment in a property and derive only consequential benefits from capital expenditures and debt amortization. We believe, however, that this narrower measure of performance is inappropriate in traditional real estate ownership structures where debt amortization and capital expenditures enhance the property owner's long-term profitability from its investment. Our FFOM may have limitations as an analytical tool because it reflects the contractual calculation of net cash flow from our on-campus participating properties, which is unique to us and is different from that of our owned off-campus properties. Companies that are considered to be in our industry may not have similar ownership structures; and therefore those companies may not calculate FFOM in the same manner that we do, or at all, limiting its usefulness as a comparative measure. We compensate for these limitations by relying primarily on our GAAP and FFO results and using FFOM only supplementally. Further, FFO and FFOM do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties. FFO and FFOM should not be considered as alternatives to net income or loss computed in accordance with GAAP as an indicator of our financial performance, or to cash flow from operating activities computed in accordance with GAAP as an indicator of our liquidity, nor are these measures indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. During the year endedDecember 31, 2019 , the Company updated the presentation of the calculation of FFO, as it relates to the presentation of consolidated joint venture partners' share of FFO and the presentation of corporate depreciation. Prior period amounts have been updated to conform to the current presentation. There were no changes to the FFO calculated or the underlying financial information used in the calculation. 35 --------------------------------------------------------------------------------
The following table presents a reconciliation of our net income attributable to common stockholders to FFO and FFOM:
Three Months Ended
March 31,
2020 2019
Net income attributable to ACC, Inc. and
Subsidiaries common stockholders $ 80,855 $ 29,640
Noncontrolling interests' share of net income 1,206
1,728
Joint Venture ("JV") partners' share of FFO
JV partners' share of net income (916 ) (1,568 )
JV partners' share of depreciation and
amortization (1,965 ) (2,157 )
(2,881 ) (3,725 )
Gain from disposition of real estate (48,525 ) -
Elimination of provision for real estate
impairment - 3,201
Total depreciation and amortization 66,169
68,755
Corporate depreciation (1) (889 ) (1,222 ) FFO attributable to common stockholders and OP unitholders 95,935
98,377
Elimination of operations of on-campus
participating properties ("OCPPs")
Net income from OCPPs (3,706 ) (3,692 )
Amortization of investment in OCPPs (2,037 )
(2,029 )
90,192 92,656
Modifications to reflect operational performance of OCPPs Our share of net cash flow (2) 860 882 Management fees and other 583 820 Contribution from OCPPs 1,443 1,702 Elimination of loss from extinguishment of debt (3) 4,827 - Elimination of FFO from property in receivership (4) -
969
Elimination of litigation settlement expense (5) 1,100 -
Funds from operations-modified ("FFOM")
attributable to common stockholders and OP
unitholders $ 97,562 $ 95,327
FFO per share - diluted $ 0.69 $ 0.71
FFOM per share - diluted $ 0.70 $ 0.69
Weighted-average common shares outstanding -
diluted 139,091,230 138,811,527
(1) Represents depreciation on corporate assets not added back for purposes of
calculating FFO.
(2) 50% of the properties' net cash available for distribution after payment of
operating expenses, debt service (including repayment of principal) and
capital expenditures which is included in ground/facility leases expense in
the consolidated statements of comprehensive income.
(3) Represents loss associated with the
2020.
(4) Represents FFO for an owned property that was transferred to the lender in
(5) Represents the settlement of a litigation matter that is included in general
and administrative expenses in the accompanying consolidated statements of
comprehensive income.
Inflation
Our student leases do not typically provide for rent escalations. However, they
typically do not have terms that extend beyond 12 months. Accordingly, although
on a short term basis we would be required to bear the impact of rising costs
resulting from inflation, we have the opportunity to raise rental rates at least
annually to offset such rising costs. However, a weak economic environment or
declining student enrollment at our principal universities may limit our ability
to raise rental rates.
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