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, risks associated with the Merger, including our
ability to consummate the Merger Transactions on the proposed terms or on the
anticipated timeline, or at all, including risks and uncertainties related to
securing the necessary stockholder approvals and satisfaction of other closing
conditions to consummate the Merger Transactions and the occurrence of any
event, change or other circumstance that could give rise to the termination of
the Merger Agreement, and the other factors discussed in the "Risk Factors"
contained in Item 1A of our Form 10-K for the year ended December 31, 2021 and
Item 1A of this Quarterly Report and subsequent reports we file with the SEC .
As previously announced, on April 18, 2022 , the Company and the Operating
Partnership entered into an agreement and plan of merger (the "Merger
Agreement") with Abacus Parent LLC ("Parent"), Abacus Merger Sub I LLC ("Merger
Sub I"), and Abacus Merger Sub II LLC ("Merger Sub II"). Parent, Merger Sub I,
and Merger Sub II are affiliates of Blackstone Core+ perpetual capital vehicles,
primarily comprised of Blackstone Real Estate Income Trust, Inc. and Blackstone
Property Partners . Pursuant to the Merger Agreement Merger Sub II will merge
with and into the Operating Partnership (the "Partnership Merger"), with the
Operating Partnership being the surviving entity, and immediately following the
consummation of the Partnership Merger, the Company shall merge with and into
Merger Sub I (the "Company Merger"), with Merger Sub I being the surviving
entity. Pursuant to the Merger Agreement the outstanding shares of common stock
of the Company will be acquired for $65.47 per share (the "Merger
Consideration") in an all-cash transaction. During the term of the Merger
Agreement, the Company may not pay dividends except as necessary to preserve its
tax status as a REIT, and any such dividends would result in an offsetting
decrease to the Merger Consideration.
The Company Merger, Partnership Merger, and the other transactions contemplated
by the Merger Agreement (the "Merger Transactions") are subject to customary
closing conditions, including approval by the Company's common stockholders. The
Merger Transactions are expected to close during the third quarter of 2022. The
Company can provide no assurances regarding whether the Merger Transactions will
close as expected during the third quarter of 2021 or at all. The Board of
Directors of the Company has unanimously approved the Merger Agreement, and has
recommended approval of the merger, and the other transactions contemplated by
the Merger Agreement, by the Company's stockholders.
20
--------------------------------------------------------------------------------Our Company and Our Business
Overview
We are 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 12 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1 for information about our operating segments. We believe that the ownership and operation of student housing communities in close proximity to selected colleges and universities presents an attractive long-term investment opportunity for our investors. We intend to continue to execute our strategy of identifying existing differentiated, typically highly amenitized, student housing communities or development opportunities in close proximity to university campuses with high barriers to entry which are projected to experience substantial increases in enrollment and/or are under-serviced in terms of existing on and/or off-campus student housing.
Property Portfolio
Below is a summary of our property portfolio as of
Property portfolio: Properties Beds Owned operating properties Off-campus properties 126 70,234 On-campus ACE (1) (2) 33 32,759 Subtotal - operating properties 159 102,993
Owned properties under development
On-campus ACE (3) 1 3,681 Subtotal - properties under development 1 3,681 Total owned properties 160 106,674 On-campus participating properties 6 5,230 Total owned property portfolio 166 111,904 Managed properties 36 28,443 Total property portfolio 202 140,347
(1)Includes two properties at
(2)Includes 33 properties operated under ground/facility leases with 16 university systems and completed phases of the Walt Disney World® Resort project, which consists of ten phases, of which six full phases and one partial phase were delivered as ofMarch 31, 2022 , with the remainder anticipated to be delivered in 2022 and 2023. (3)The Walt Disney World® Resort project consists of one property with multiple phases delivered through 2023; as such, only the beds for remaining phases to be completed are included in the beds for owned properties under development. Beds for any completed phases of this project are included in owned operating properties beds. Leasing Results Our financial results for the year endedDecember 31, 2022 are impacted by the results of our annual leasing process for the 2021/2022 and 2022/2023 academic years. As ofSeptember 30, 2021 , the beginning of the 2021/2022 academic year, occupancy at our 2022 same store properties was 95.8% with a rental rate increase of 3.8% compared to the prior academic year.
The Company is in the process of constructing a ten-phase housing project under
our ACE® structure with scheduled phase deliveries from 2020 to 2023 for Walt
Disney World® Resort that will serve student interns participating in the highly
21
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competitive Disney College Program ("Disney College Program" or "DCP"). As of
March 31, 2022 , the Company has completed construction on six full phases and
one partial phase of the project within the targeted delivery timeline, and the
remaining phases are anticipated to be delivered in 2022 and 2023. In May 2021 ,
Walt Disney World® Resort announced that it was recommencing the DCP in the
summer of 2021 after temporarily suspending the program in 2020 due to the
COVID-19 pandemic. As of March 31, 2022 , occupancy at the completed phases of
the project was approximately 89.7%.
During the three months ended
University/Market Served Project Location Beds Total Project Cost Opened for Occupancy
Walt Disney World® Resort Disney College Program Orlando, FL $ 49,800 January 2022
Phase VI (1) 739
Disney College Program Orlando, FL 736 40,700 March 2022
Phase VII A
1,475 $ 90,500
At
Estimated Total Costs
University/Market Served Project Location Beds Project Cost Incurred Scheduled Occupancy
Walt Disney World® Resort Disney College Program Orlando, FL 1,472 $ 82,100 $ 77,783 May & Aug 2022
Phases VII B-VIII
Disney College Program Orlando, FL 2,209 122,700 99,779 Jan & May 2023
Phases IX-X
3,681 $ 204,800 $ 177,562 Third-Party Development Services
Through ACC's TRS entities, we provide development and construction management services for student housing properties owned by colleges and universities, charitable foundations, and others.
As of
Critical Accounting Policies and Estimates
There have been no material changes to the Company's critical accounting policies and estimates disclosed in the Company's Form 10-K for the year endedDecember 31, 2021 . Refer to Note 2 in the accompanying Notes to Consolidated Financial statements contained in Item 1 for information regarding recently adopted accounting standards. 22 --------------------------------------------------------------------------------
Results of Operations
Comparison of the Three Months Ended
The following table presents our results of operations for the three months
ended
Three Months Ended
March 31,
2022 2021 Change ($) Change (%)
Revenues
Owned properties $ 253,048 $ 218,444 $ 34,604 15.8 %
On-campus participating properties 10,694 8,958 1,736 19.4 %
Third-party development services 6,882 1,959 4,923 251.3 %
Third-party management services 3,122 3,361 (239) (7.1) %
Total revenues 273,746 232,722 41,024 17.6 %
Operating expenses (income)
Owned properties 103,608 93,991 9,617 10.2 %
On-campus participating properties 4,001 3,290 711 21.6 %
Third-party development and management services 5,154 5,387 (233) (4.3) %
General and administrative 10,298 11,128 (830) (7.5) %
Depreciation and amortization 70,552 68,117 2,435 3.6 %
Ground/facility leases 6,138 3,208 2,930 91.3 %
Other operating expenses - 1,200 (1,200) (100.0) %
Total operating expenses 199,751 186,321 13,430 7.2 %
Operating income 73,995 46,401 27,594 59.5 %
Nonoperating income (expenses)
Interest income 560 220 340 154.5 %
Interest expense (30,061) (28,977) (1,084) 3.7 %
Amortization of deferred financing costs (1,614) (1,319) (295) 22.4 %
Other nonoperating income 180 - 180 100.0 %
Total nonoperating expenses (30,935) (30,076) (859) 2.9 %
Income before income taxes 43,060 16,325 26,735 163.8 %
Income tax provision (340) (340) - - %
Net income 42,720 15,985 26,735 167.3 %
Net income attributable to noncontrolling
interests (3,537) (367) (3,170) 863.8 %
Net income attributable to ACC, Inc. and
Subsidiaries common stockholders $ 39,183 $ 15,618 $ 23,565 150.9 %
Same Store and New Property Operations
We define our same store property portfolio as owned properties that are owned and operating for both of the full years endedDecember 31, 2022 andDecember 31, 2021 , 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, 2022 . 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. 23 -------------------------------------------------------------------------------- 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 other property operations to our consolidated statements of comprehensive income is set forth below:
Same Store Properties New Properties (1) Other (2) Total - All Properties
Three Months Ended Three Months Ended Three Months Ended Three Months Ended
March 31, March 31, March 31, March 31,
2022 2021 2022 2021 2022 2021 2022 2021
Number of properties (3) 159 159 - - - - 159 159
Number of beds (3) 96,234 96,234 6,759 2,611 - - 102,993 98,845
Revenues $ 239,639 $ 217,789 $ 13,409 $ 655 $ - $ - $ 253,048 $ 218,444
Operating expenses $ 96,369 $ 92,403 $
7,148
$ 93,991
(1)Property count does not include the Walt Disney World® Resort project which is counted as one property under development and consists of ten phases, of which six full phases and one partial phase have been completed, with the remaining phases anticipated to be delivered in 2022 and 2023. Bed count includes the beds for the completed phases of this project.
(2)Includes professional fees related to the operation of consolidated joint ventures that are included in owned properties operating expenses in the consolidated statements of comprehensive income.
(3)Does not include properties that are under construction or undergoing redevelopment.
Same Store Properties : The increase in same store revenue was primarily due to an increase in average occupancy from 89.9% for the three months endedMarch 31, 2021 , to 95.6% for the three months endedMarch 31, 2022 coupled with an increase in average rental rates due to improved leasing results for the 2021/2022 academic year compared to the prior academic year, and an increase in other income. The increase in operating expenses for our same store properties during the three months endedMarch 31, 2022 was driven by the normalization of operations, as the prior year financial results were impacted by COVID-19, and other inflationary factors. New Property Operations: Our new properties for the three months endedMarch 31, 2021 include six full phases and one partial phase at our Disney College Program project which have opened for occupancy. These phases are summarized in the table below: Property Location University / Market Served Beds Opened for Occupancy Disney College Program Phase Walt Disney World® Resort 778 May 2020 I (ACE) Orlando, FL Disney College Program Phase Walt Disney World® Resort 849 August 2020 II (ACE) Orlando, FL Disney College Program Phase Walt Disney World® Resort 984 January 2021 III (ACE) Orlando, FL Disney College Program Phase Walt Disney World® Resort 1,521 May 2021 IV (ACE) Orlando, FL Disney College Program Phase Walt Disney World® Resort 1,152 July 2021 V (ACE) Orlando, FL Disney College Program Phase Walt Disney World® Resort 739 January 2022 VI (ACE) Orlando, FL Disney College Program Phase Walt Disney World® Resort 736 VII A (ACE) Orlando, FL March 2022 Total - New Properties 6,759
As ofMarch 31, 2022 , we had six OCPPs containing 5,230 beds. Revenues from our OCPPs increased by$1.7 million , from$9.0 million for the three months endedMarch 31, 2021 , to$10.7 million for the three months endedMarch 31, 2022 . The increase was primarily due to an increase in average occupancy from 81.3% for the three months endedMarch 31, 2021 to 90.6% for the three months endedMarch 31, 2022 . 24 --------------------------------------------------------------------------------
Operating expenses at our OCPPs increased by
Third-Party Development Services Revenue
Third-party development services revenue increased by approximately$4.9 million , from$2.0 million during the three months endedMarch 31, 2021 , to$6.9 million for the three months endedMarch 31, 2022 . The increase was primarily due to the commencement of construction of the Family andGraduate Housing project atMassachusetts Institute of Technology which contributed$4.8 million of revenue during the three months endedMarch 31, 2022 , as compared to the commencement of construction of a second phase project atConcordia University during the prior year period which contributed$0.8 million of revenue during the three months endedMarch 31, 2021 and a$1.3 million increase in continued development services revenues for projects that commenced construction in 2019, 2020, and 2021. These increases were offset by a$0.4 million decrease in incentive fees earned during the comparable periods related to cost savings from completed development projects.
General and Administrative
General and administrative expenses decreased by approximately$0.8 million , from$11.1 million during the three months endedMarch 31, 2021 , to$10.3 million for the three months endedMarch 31, 2022 . The decrease was primarily due to a decrease in consulting, legal, and other costs related to stockholder engagement activities, a decrease in board compensation expense due to Board refreshment activities inJanuary 2021 , and a decrease in restricted stock award amortization expense due to the acceleration of amortization related to the retirement of the Company's President inAugust 2021 . Excluding these items, general and administrative expenses increased by approximately$0.8 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 due to additional expenses incurred in connection with enhancements to our operating systems platform and other general inflationary factors.
Depreciation and Amortization
Depreciation and amortization increased by approximately$2.5 million , from$68.1 million during the three months endedMarch 31, 2021 , to$70.6 million for the three months endedMarch 31, 2022 . The increase was primarily due to a$2.1 million increase in depreciation expense related to the completion of construction and opening of phases IV- VIIA of the Disney College Program during 2021 and 2022. Ground/Facility Leases Ground/facility leases expense increased by approximately$2.9 million , from$3.2 million during the three months endedMarch 31, 2021 , to$6.1 million for the three months endedMarch 31, 2022 . The increase was primarily due to the additional expense incurred at ourDisney College Program Project as a result of the reinstatement of the Disney College Program inMay 2021 and the continued delivery of phases of the project during 2021 and 2022.
Other Operating Expenses
Other operating expenses for the three months ended
Interest Expense
Interest expense increased by approximately$1.1 million , from$29.0 million during the three months endedMarch 31, 2021 , to$30.1 million for the three months endedMarch 31, 2022 . The increase was primarily due to$2.3 million of additional interest incurred related to our offering of unsecured notes inOctober 2021 and a$0.9 million decrease in capitalized interest due to the delivery of phases IV - VIIA of the Disney College Program. These items were offset by a$1.2 million decrease in interest expense on our revolving credit facility, as there was no outstanding balance during the three months endedMarch 31, 2022 , and a$0.8 million decrease due to the pay-off of mortgage debt in 2021. 25 --------------------------------------------------------------------------------
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests represents consolidated joint venture partners' share of net income and net income allocable to OP unitholders. Net income attributable to noncontrolling interests increased by$3.1 million , from$0.4 million for the three months endedMarch 31, 2021 , to$3.5 million for the three months endedMarch 31, 2022 . The increase is primarily due to the closing of an additional joint venture transaction onDecember 31, 2021 as well as improved operating performance at the properties in previously existing joint ventures. 26 --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Merger Agreement contains provisions which restrict or prohibit certain capital expenditures without the consent of the Parent as well as certain capital transactions typically used to fund our short and long-term liquidity requirements. Until the Merger Transactions close, or the Merger Agreement is terminated, our liquidity requirements will primarily be funded by our cash flow from operations and certain other capital activities allowed under the Merger Agreement. In particular, we are subject to various restrictions under the Merger Agreement on raising additional capital, assuming additional debt, issuing additional equity or debt, repurchasing equity, paying dividends, utilizing our revolving credit facility, and entering into certain acquisition and disposition transactions, among other restrictions.
Cash Balances and Cash Flows
Our cash, cash equivalents, and restricted cash balances as ofMarch 31, 2022 and the change in the balances fromDecember 31, 2021 are summarized in the table below. March 31, 2022 December 31, 2021 Change ($) Cash and cash equivalents$ 87,656 $ 120,351$ (32,695) Restricted cash 16,988 14,326 2,662 Total$ 104,644 $ 134,677$ (30,033)
The following table summarizes our cash flows due to operating, investing, and
financing activities for the three months ended
Three Months Ended
2022 2021 Change ($)
Net cash provided by operating activities $ 73,414
(27,557) (66,575) 39,018
Net cash (used in) provided by financing
activities (75,890) 8,018 (83,908)
Net change in cash, cash equivalents, and
restricted cash $ (30,033) $ (8,743) $ (21,290)
Operating Activities
This increase in cash provided by operating activities was primarily due to the following:
(i)improved operating results at our properties during the three months endedMarch 31, 2022 due to the continued normalization of operations at our owned properties, a decrease in COVID-19 related concessions, increases in occupancy and rental rates for the 2021/2022 academic year, and the recommencement of the Disney College Program in 2021; (ii)timing of the collection of receivables related to third-party development projects; and (iii)increases in payables due to the timing of property tax payments.
These increases were partially offset by the following:
(i)timing of the collection of receivables related to master lease agreements; and (ii)decreases in accrued expenses and the payment of incentive compensation.
Investing Activities
The decrease in cash used in investing activities was primarily due to a$36.9 million decrease in cash used to fund the construction of our owned development property. 27 --------------------------------------------------------------------------------
Financing Activities
The increase in cash used in financing activities was primarily due to the following:
(i)a
These increases in cash used in financing activities were offset by a
Liquidity Needs, Sources, and Uses of Capital
As of
(i)estimated development costs over the next 12 months totaling approximately
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 Credit Facility, which had availability of$1.0 billion as ofMarch 31, 2022 ; (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 6 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, or otherwise; and (vi)potentially disposing of properties and/or selling ownership interests in existing properties through joint venture arrangements, depending on market conditions.
Our ability to obtain additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to the real estate industry, our credit ratings 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 to obtain additional cushion against possible shortfalls. We
also may pursue additional financing as opportunities arise. Future financings
may include a range of different sizes or types of financing, including the
incurrence of additional secured debt and the sale of additional debt or equity
securities. These funds may not be available on favorable terms or at all. Our
ability to obtain additional financing depends on several factors, including
future market conditions, our 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.
The funding to meet short term liquidity needs may vary if the Merger
Transactions close as expected. The Company is subject to various restrictions
including equity issuances, other capital markets activities, borrowing on our
Credit Facility, and sales of interests in certain projects into unconsolidated
entities pursuant to the terms of the Merger Agreement, among other
restrictions.
28
--------------------------------------------------------------------------------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. During the term of the Merger Agreement, the Company may not pay dividends except as necessary to preserve its tax status as a REIT, and any such dividends would result in an offsetting decrease to the Merger Consideration.
Indebtedness
The amounts below exclude net unamortized debt premiums and discounts related to
mortgage loans assumed in connection with property acquisitions, original issue
discounts ("OIDs"), and deferred financing costs (see Note 5 in the accompanying
Notes to the Consolidated Financial Statements contained in Item 1). A summary
of our consolidated indebtedness as of March 31, 2022 is as follows:
Weighted Average
Amount % of Total Rates (1) Weighted Average Maturities
Secured $ 535,387 15.2 % 4.1 % 6.3 Years
Unsecured 3,000,000 84.8 % 3.3 % 4.9 Years
Total consolidated debt $ 3,535,387 100.0 % 3.5 % 5.1 Years
Fixed rate debt
Secured
Project-based taxable bonds $ 14,695 0.4 % 7.5 % 2.9 Years
Mortgage 520,066 14.7 % 4.0 % 6.4 Years
Unsecured
April 2013 Notes 400,000 11.3 % 3.8 % 1.0 Years
June 2014 Notes 400,000 11.3 % 4.1 % 2.3 Years
October 2017 Notes 400,000 11.3 % 3.6 % 5.6 Years
June 2019 Notes 400,000 11.3 % 3.3 % 4.3 Years
January 2020 Notes 400,000 11.3 % 2.9 % 7.8 Years
June 2020 Notes 400,000 11.3 % 3.9 % 8.8 Years
October 2021 Notes 400,000 11.3 % 2.3 % 6.8 Years
Term loan 200,000 5.7 % 2.5 % .2 Years
Total - fixed rate debt 3,534,761 99.9 % 3.5 % 5.1 Years
Variable rate debt
Secured mortgage 626 0.1 % 2.9 % 23.3 Years
Unsecured revolving credit facility
(2) - - % - % 3.1 Years
Total - variable rate debt 626 0.1 % 2.9 % 23.3 Years
Total consolidated debt $ 3,535,387 100.0 % 3.5 % 5.1 Years
(1) Represents stated interest rate and does not include the effect of the
amortization of deferred financing costs, debt premiums and discounts, OIDs, and
interest rate swap terminations.
(2) The Company's Credit Facility had a principal balance of zero as of
March 31, 2022 . Refer to Note 5 in the accompanying Notes to Consolidated
Financial Statements contained in Item 1 for further discussion.
Supplemental Guarantor Information
The Company has adopted rules issued by theSecurities and Exchange Commission which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent. Accordingly, separate consolidated 29 -------------------------------------------------------------------------------- financial statements of theOperating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for theOperating Partnership as the assets, liabilities, and results of operations of the Company and theOperating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.American Campus Communities Operating Partnership, LP (the "Subsidiary Issuer") has issued the unsecured notes described in the Unsecured Notes section of Note 5 in the accompanying Notes to Consolidated Financial Statements contained in Item 1. The unsecured notes are fully and unconditionally guaranteed by the Company, and the Subsidiary Issuer is 99.6% owned, directly or indirectly, by the Company. The guarantees are direct senior unsecured obligations of the Company and rank equally in right of payment with all other senior unsecured indebtedness of the Company from time to time outstanding. Furthermore, the Company's guarantees will be effectively subordinated in right of payment to all liabilities, whether secured or unsecured, and any preferred equity of its subsidiaries (including theOperating Partnership and any entity the Company accounts for under the equity method of accounting). In addition, under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee, such as the guarantee provided by the Company, could be voided, and payment thereon could be required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor, under certain circumstances. The terms of the unsecured notes include certain financial covenants that require theOperating Partnership to limit the amount of total debt and secured debt as a percentage of total asset value, as defined. In addition, theOperating Partnership must maintain a minimum ratio of unencumbered asset value to unsecured debt, as well as a minimum interest coverage level. As ofMarch 31, 2022 , theOperating Partnership was in compliance with all such covenants.
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 ("FFOM"), which reflects certain adjustments related to the economic performance of our on-campus participating properties, and other items, as we determine in good faith, that do not reflect our core operations on a comparative basis. Under our participating ground leases, we and the participating university systems each receive 50% of the properties' net cash available for distribution after payment of operating expenses, debt service (which includes significant amounts towards repayment of principal), and capital expenditures. A substantial portion of our revenues attributable to these properties is reflective of cash that is required to be used for capital expenditures and for the amortization of applicable property indebtedness. These amounts do not increase our economic interest in these properties or otherwise benefit us since our interest in the properties terminates upon the repayment of the applicable property indebtedness. Therefore, unlike the ownership of our owned properties, the unique features of our ownership interest in our on-campus participating properties cause the value of these properties to diminish over time. For example, since the ground/facility leases under which we operate the participating properties require the reinvestment from operations of specified amounts for capital expenditures and for the repayment of debt while our interest in these properties terminates upon the repayment of the debt, such capital expenditures do not increase the value of the property to us and mortgage debt amortization only increases the equity of the ground lessor. Accordingly, we believe it is meaningful to modify FFO to exclude the operations of our on-campus participating properties and to consider their impact on our performance by including only that portion of our revenues from those properties that are reflective of our share of net cash flow and the management fees that we receive, both of which increase and decrease with the operating performance of the properties. This narrower measure of performance measures our profitability for these properties in a manner that is similar to the measure of 30 -------------------------------------------------------------------------------- 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.
The following table presents a reconciliation of our net income attributable to common stockholders to FFO and FFOM:
Three Months Ended
March 31,
2022 2021
Net income attributable to
$ 39,183 $ 15,618 Noncontrolling interests' share of net income 3,537 367 Joint Venture ("JV") partners' share of FFO JV partners' share of net income (3,391) (300) JV partners' share of depreciation and amortization (3,121) (1,892) (6,512) (2,192) Total depreciation and amortization 70,552 68,117 Corporate depreciation (1) (684) (749) FFO attributable to common stockholders and OP unitholders 106,076 81,161 Elimination of operations of OCPPs Net income from OCPPs (3,901) (2,954) Amortization of investment in OCPPs (1,993) (2,042) 100,182 76,165
Modifications to reflect operational performance of OCPPs Our share of net cash flow (2)
433 139
Management fees and other 569 508
Contribution from OCPPs 1,002 647
Shareholder activism and other proxy advisory costs (3) 202 914
Elimination of litigation settlement expense (4) - 1,200
Executive retirement charges (5) - 538
FFOM attributable to common stockholders and OP unitholders $ 101,386 $ 79,464
FFO per share - diluted $ 0.75 $ 0.58
FFOM per share - diluted $ 0.72 $ 0.57
Weighted-average common shares outstanding - diluted 141,040,326 139,512,359
(1)Represents depreciation on corporate assets not added back for purposes of calculating FFO.
(2)50% of the properties' net cash available for distribution after payment of
operating expenses, debt service (including repayment of principal), and capital
expenditures which is included in ground/facility leases expense in the
accompanying consolidated statements of comprehensive income.
(3)Represents consulting, legal, and other related costs incurred in relation to
stockholder activism activities in preparation for the Company's 2021 and 2022
annual stockholders' meetings, which are included in general and administrative
expenses in the accompanying consolidated statements of comprehensive income.
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(4)Represents expense associated with the settlement of a litigation matter,
which is included in other operating expenses in the accompanying consolidated
statements of comprehensive income.
(5)Represents accelerated amortization of unvested restricted stock awards due
to the retirement of the Company's President in August 2021 , which is included
in general and administrative expenses in the accompanying consolidated
statements of comprehensive income.
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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