ACC American Campus Communities Inc

American Campus Communities, Inc. (NYSE:ACC) today announced the following financial results for the quarter ended June 30, 2016.

Highlights

• Reported net income attributable to ACC of $18.4 million or $0.14 per fully diluted share, versus $15.6 million or $0.14 per fully diluted share in the second quarter 2015.
• Achieved quarterly FFOM of $0.54 per fully diluted share or $72.2 million, versus $0.57 per fully diluted share or $65.2 million for the second quarter prior year.
• Increased same store wholly-owned net operating income ("NOI") 2.5 percent over the second quarter 2015 with revenues increasing 2.5 percent and operating expenses increasing 2.4 percent.
• Achieved same store wholly-owned average physical occupancy of 92.6 percent for the second quarter 2016 compared to 93.0 percent for the second quarter 2015.
• Preleased the same store wholly-owned portfolio for the upcoming academic year to 98.7 percent applied for and 93.1 percent leased as of July 22, 2016 with a current projected rental rate increase of 3.0 percent. This compares to 99.2 percent applied for and 93.2 percent leased for the same date prior year. Excluding non-core properties targeted for disposition, the same store wholly-owned portfolio is preleased to an average of 94.3 percent versus 93.5 percent for the same date prior year.
• Commenced construction on U Club Binghamton, a $55.8 million development located pedestrian to SUNY Binghamton which is scheduled for delivery in Fall 2017.
• Secured two in-process development projects located pedestrian to Clemson University and the University of Oklahoma which were part of the broader University House Communities Group, Inc. transaction. The infill developments total 1,333 beds scheduled for delivery in Fall 2017 and represent a total development cost of $130.6 million.
• Closed on financing and commenced construction on two third-party on-campus development projects with the Texas A&M University System at their Corpus Christi and San Antonio campuses. Both projects are slated for delivery in Fall 2017.
• The company’s corporate credit rating was upgraded to Baa2 from Baa3 by Moody’s Investor Service with a stable outlook.
• Won the National Council for Public-Private Partnerships’ “Innovation Project Award” for the company’s transformational mixed-use developments at Drexel University.
• Received the Urban Land Institute of Philadelphia’s Willard G. “Bill” Rouse III Award for Excellence for the company’s development of The Summit at University City. The award was scored on use of best practices, quality planning and design, elements that build healthy places, environmental sustainability and energy reduction, economic success and market acceptance.

“We are pleased with our operational performance this quarter and the addition of two infill 2017 development projects located pedestrian to major Tier 1 universities,” said Bill Bayless, American Campus CEO. “Moving into the second half of the year, we are highly focused on completing a successful lease-up and executing on the strategic disposition of our non-core assets which will complete the transformation of our owned portfolio into one consisting almost exclusively of core Class A products located a median distance of only one tenth of a mile from Tier 1 universities. We are excited about the opportunities for improved rental rate growth, margin expansion and future NOI growth potential that the remaining core portfolio provides in terms of delivering outstanding value creation to our shareholders.”

Second Quarter Operating Results

Revenue for the 2016 second quarter totaled $186.0 million, a 4.6 percent increase from $177.9 million in the second quarter 2015 and operating income for the quarter increased $4.7 million or 13.5 percent over the prior year second quarter. The increase in revenues and operating income was primarily due to growth resulting from increased rental rates for the 2015-2016 academic year and development properties and acquisitions completed in 2015. Net income for the 2016 second quarter totaled $18.4 million, or $0.14 per fully diluted share, compared with net income of $15.6 million, or $0.14 per fully diluted share, for the same quarter in 2015. The increase in net income as compared to the prior year quarter is primarily due to the increases in revenue and operating income described above.

FFO for the 2016 second quarter totaled $71.7 million, or $0.54 per fully diluted share, as compared to $63.1 million, or $0.55 per fully diluted share for the same quarter in 2015. FFOM for the 2016 second quarter was $72.2 million, or $0.54 per fully diluted share as compared to $65.2 million, or $0.57 per fully diluted share for the same quarter in 2015. A reconciliation of FFO and FFOM to net income is provided in Table 3.

NOI for same store wholly-owned properties was $86.2 million in the quarter, an increase of 2.5 percent over $84.1 million in the 2015 second quarter. Same store wholly-owned property revenues increased by 2.5 percent over the 2015 second quarter due to an increase in average rental rates for the 2015-2016 academic year. Same store wholly-owned property operating expenses increased by 2.4 percent over the prior year quarter. NOI for the total wholly-owned portfolio increased 7.4 percent to $97.7 million for the quarter from $90.9 million in the comparable period of 2015. A reconciliation of same store NOI to total NOI is provided in Table 4.

Portfolio Update

Developments

The company is progressing on the construction of its $911.9 million owned development pipeline with expected delivery in Fall 2016 and Fall 2017. The owned developments are all core Class A assets pedestrian to campus in their respective markets and are on track to achieve stabilized development yields in the range of 6.5 - 7.0 percent.

The seven new owned development projects scheduled to open Fall 2016, totaling $308.8 million, are preleased at an average of 84.2 percent for the upcoming academic year as of July 22, 2016. When excluding Merwick Stanworth Phase II, a community which will serve faculty and staff members of Princeton University and is expected to stabilize in a manner consistent with a multi-family property during the first academic year, the company’s 2016 new development deliveries are preleased to an average of 92.1 percent.

Off-Campus Owned

The company commenced construction on U Club Binghamton, a $55.8 million, 562-bed development located pedestrian to SUNY Binghamton. Upon delivery in Fall 2017, the property will efficiently share operations and amenities, including a 15,000 square foot community center, with UP at Metroplex, an existing 710-bed ACC community located adjacent to the new development.

During the quarter, the company secured an under-construction development project located pedestrian to Clemson University in the highly popular downtown entertainment submarket. Upon delivery in Fall 2017, the $41.5 million community named U Centre on College will include 418 beds of modern purpose built accommodations and competitive amenities including a premier academic success center with dedicated study areas.

Also during the quarter, the company secured an under-construction infill development project located immediately adjacent to the University of Oklahoma campus, in a highly visible location near the academic and athletic centers of activity and within walking distance to the football stadium. Upon completion in Fall 2017, the $89.1 million, 915-bed Callaway House Apartments will be the only modern purpose built student housing development in this market with pedestrian access to core campus.

Third-Party Services

During the quarter, the company closed on financing and commenced construction on two previously announced third-party on-campus development projects: a 560-bed second phase development at Texas A&M University – Corpus Christi, and a 382-bed development at Texas A&M University – San Antonio. The company anticipates providing management services for these projects upon completion and expects to earn a total of $3.4 million in development fees throughout the construction period, with delivery for both projects scheduled for Fall 2017.

Capital Markets

During the quarter, Moody’s upgraded its corporate credit rating on the company from Baa3 to Baa2 with a stable outlook. In its report, Moody’s stated that “American Campus has experienced consistently strong operating performance, including through the most recent credit and real estate market downturn, which is reflected in the company's stable occupancy in the mid-90% range and solid same-store year-over-year NOI growth.” Further, the report states that “The ratings upgrade reflects ACC's balance sheet improvements which include moderate leverage and a substantial increase in unencumbered assets.”

At-The-Market (ATM) Share Offering Program

The company did not sell any shares under the ATM Share Offering Program during the second quarter, or subsequent to quarter end.

2016 Outlook

The company is revising upward its 2016 outlook to reflect management’s updated expectations with regard to third-party net operating income and the timing of targeted non-core dispositions which management expects to close in the fourth quarter of 2016. Based upon these and other factors, management anticipates that FFO will be in the range of $2.25 to $2.36 per fully diluted share, and FFOM will be in the range of $2.19 to $2.31 per fully diluted share. The company’s full year results continue to be highly dependent upon the final outcome of the 2016-2017 lease-up and overall operational performance in the second half of 2016, as well as the previously mentioned volume and timing of its strategic non-core dispositions.

For additional details regarding the company’s 2016 outlook, please see pages 16-17 of the Supplemental Analyst Package 2Q 2016. 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, 2016 is included in Table 5.

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 2016 outlook on Tuesday, July 26, 2016 at 10 a.m. EDT (9:00 a.m. CDT). Participants from within the U.S. may dial 888-317-6003 passcode 6672355, and participants outside the U.S. may dial 412-317-6061 passcode 6672355 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 9, 2016 by dialing 877-344-7529 or 412-317-0088 conference number 10087541. 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, 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. 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 property acquisition costs and other non-cash items, as we determine in good faith. 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, manager and developer 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. As of June 30, 2016, American Campus Communities owned 168 student housing properties containing approximately 103,200 beds. Including its owned and third-party managed properties, ACC's total managed portfolio consisted of 206 properties with approximately 133,100 beds. Visit www.americancampus.com.

Forward-Looking Statements

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

         

Table 1

American Campus Communities, Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands)   June 30, 2016 December 31, 2015 (unaudited) Assets   Investments in real estate: Wholly-owned properties, net $ 5,721,507 $ 5,522,271 Wholly-owned properties held for sale — 55,354 On-campus participating properties, net   87,596     90,129   Investments in real estate, net 5,809,103 5,667,754   Cash and cash equivalents 206,738 16,659 Restricted cash 34,946 33,675 Student contracts receivable, net 7,117 18,475 Other assets1 2   257,153     269,685     Total assets $ 6,315,057   $ 6,006,248     Liabilities and equity   Liabilities:

Secured mortgage, construction and bond debt2

$ 1,054,376 $ 1,094,962 Unsecured notes2 1,187,695 1,186,700 Unsecured term loans2 348,593 597,719 Unsecured revolving credit facility — 68,900 Accounts payable and accrued expenses 61,626 71,988 Other liabilities3   164,493     144,811   Total liabilities 2,816,783 3,165,080   Redeemable noncontrolling interests 73,722 59,511   Equity:

American Campus Communities, Inc. and Subsidiaries stockholders’ equity:

Common stock 1,304 1,124 Additional paid in capital 4,021,440 3,325,806 Treasury stock (975 ) (403 ) Accumulated earnings and dividends (594,115 ) (550,501 ) Accumulated other comprehensive loss   (7,263 )   (5,830 )

Total American Campus Communities, Inc. and Subsidiaries stockholders’ equity

 

3,420,391 2,770,196 Noncontrolling interests – partially owned properties   4,161     11,461   Total equity   3,424,552     2,781,657     Total liabilities and equity $ 6,315,057   $ 6,006,248    

1.

  As of June 30, 2016, other assets include approximately $3.1 million related to net deferred financing costs on our revolving credit facility and the net value of in-place leases.  

2.

Beginning in 2016, deferred financing costs associated with secured mortgage, construction and bond debt, unsecured notes, and unsecured term loans are subject to new accounting guidance and are presented as a direct reduction to the carrying value of the debt. Prior period amounts have been reclassified to conform to the current period presentation.  

3.

As of June 30, 2016, other liabilities include approximately $42.7 million in deferred revenue and fee income.             Table 2 American Campus Communities, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (unaudited, dollars in thousands, except share and per share data)   Three Months Ended June 30, Six Months Ended June 30, 2016     2015 2016     2015   Revenues Wholly-owned properties $ 174,682 $ 167,468 $ 360,384 $ 347,366 On-campus participating properties 6,214 5,704 16,260 14,904 Third-party development services 2,121 1,677 3,156 2,241 Third-party management services 2,253 2,324 4,663 4,325 Resident services   713     701     1,515     1,531   Total revenues 185,983 177,874 385,978 370,367   Operating expenses Wholly-owned properties 77,722 77,251 156,573 156,261 On-campus participating properties 3,299 2,942 6,341 5,610 Third-party development and management services 3,560 4,012 7,298 7,152 General and administrative 6,126 5,678 11,435 10,428 Depreciation and amortization 53,703 51,578 107,419 102,229 Ground/facility leases   2,467     1,961     4,771     4,059   Total operating expenses 146,877 143,422 293,837 285,739   Operating income 39,106 34,452 92,141 84,628   Nonoperating income and (expenses) Interest income 1,475 1,085 2,754 2,197 Interest expense (20,119 ) (20,586 ) (42,746 ) (42,574 ) Amortization of deferred financing costs (1,352 ) (1,338 ) (3,894 ) (2,717 ) Gain from disposition of real estate — 3,790 17,409 48,042 Loss from early extinguishment of debt   —     (1,175 )   —     (1,770 ) Total nonoperating (expense) income   (19,996 )   (18,224 )   (26,477 )   3,178     Income before income taxes 19,110 16,228 65,664 87,806 Income tax provision   (345 )   (310 )   (690 )   (621 ) Net income 18,765 15,918 64,974 87,185

Net income attributable to noncontrolling interests

  (327 )   (338 )   (949 )   (1,408 )

Net income attributable to ACC, Inc. and Subsidiaries common stockholders

$ 18,438   $ 15,580   $ 64,025   $ 85,777   Other comprehensive (loss) income Change in fair value of interest rate swaps and other   (23 )   845     (1,433 )   (1,023 ) Comprehensive income $ 18,415   $ 16,425   $ 62,592   $ 84,754  

Net income per share attributable to ACC, Inc. and Subsidiaries common shareholders

Basic and Diluted $ 0.14   $ 0.14   $ 0.50   $ 0.76     Weighted-average common shares outstanding: Basic   130,456,923     112,308,114     126,951,454     111,635,345   Diluted   131,240,667     112,983,939     127,753,492     113,652,341               Table 3 American Campus Communities, Inc. and Subsidiaries Consolidated Statements of Funds from Operations (unaudited, dollars in thousands, except share and per share data)   Three Months Ended June 30, Six Months Ended June 30, 2016     2015 2016     2015

Net income attributable to ACC, Inc. and Subsidiaries common stockholders

$ 18,438 $ 15,580 $ 64,025 $ 85,777 Noncontrolling interests 327 338 949 1,408 Gain from disposition of real estate — (3,790 ) (17,409 ) (48,042 ) Real estate related depreciation and amortization   52,885     50,985     105,931     101,009   Funds from operations ("FFO") attributable to common stockholders and OP unitholders 71,650 63,113 153,496 140,152   Elimination of operations of on-campus participating properties Net loss (income) from on-campus participating properties 1,097 969 (2,067 ) (1,699 ) Amortization of investment in on-campus participating properties   (1,831 )   (1,735 )   (3,654 )   (3,451 ) 70,916 62,347 147,775 135,002 Modifications to reflect operational performance of on-campus participating properties Our share of net cash flow1 1,015 739 1,865 1,614 Management fees   264     241     723     668   Contribution from on-campus participating properties 1,279 980 2,588 2,282   Property acquisition costs — 683 — 2,213 Elimination of loss from early extinguishment of debt2   —     1,175     —     1,770   Funds from operations-modified ("FFOM") attributable to common stockholders and OP unitholders $ 72,195   $ 65,185   $ 150,363   $ 141,267     FFO per share – diluted $ 0.54   $ 0.55   $ 1.19   $ 1.23     FFOM per share – diluted $ 0.54   $ 0.57   $ 1.16   $ 1.24     Weighted average common shares outstanding - diluted   132,638,808     114,541,910     129,159,380     113,762,540    

1.

 

50% of the properties’ net cash available for distribution after payment of operating expenses, debt service (including repayment of principal) and capital expenditures. Represents amounts accrued for the interim periods, which is included in ground/facility leases expense in the consolidated statements of comprehensive income (refer to Table 2).

 

2.

Represents losses associated with the early pay-off of mortgage loans for four properties sold during the six months ended June 30, 2015. Such costs are excluded from gains from disposition of real estate reported in accordance with GAAP. However, we view the losses from early extinguishment of debt associated with the sales of real estate as an incremental cost of the sale transactions because we extinguished the debt in connection with the consummation of the sale transactions and we had no intent to extinguish the debt absent such transactions. We believe that adjusting FFOM to exclude these losses more appropriately reflects the results of our operations exclusive of the impact of our disposition transactions.                 Table 4 American Campus Communities, Inc. and Subsidiaries Wholly-Owned Properties Results of Operations (unaudited, dollars in thousands)   Three Months Ended June 30, Six Months Ended June 30, 2016     2015    

$ Change

    % Change 2016     2015    

$ Change

    % Change Wholly-owned properties revenues Same store properties $ 157,172 $ 153,387 $ 3,785 2.5 % $ 323,348 $ 315,763 $ 7,585 2.4 % New properties 18,223 6,780 11,443 36,418 10,539 25,879 Sold properties1   —   8,002   (8,002 )     2,133   22,595   (20,462 )   Total revenues2 $ 175,395 $ 168,169 $ 7,226   4.3 % $ 361,899 $ 348,897 $ 13,002   3.7 % Wholly-owned properties operating expenses Same store properties $ 70,926 $ 69,245 $ 1,681 2.4 % $ 141,641 $ 138,479 $ 3,162 2.3 % New properties 6,796 3,888 2,908 13,824 6,610 7,214 Sold properties1   —   4,118   (4,118 )     1,108   11,172   (10,064 )   Total operating expenses $ 77,722 $ 77,251 $ 471   0.6 % $ 156,573 $ 156,261 $ 312   0.2 % Wholly-owned properties net operating income Same store properties $ 86,246 $ 84,142 $ 2,104 2.5 % $ 181,707 $ 177,284 $ 4,423 2.5 % New properties 11,427 2,892 8,535 22,594 3,929 18,665 Sold properties1   —   3,884   (3,884 )     1,025   11,423   (10,398 )   Total net operating income $ 97,673 $ 90,918 $ 6,755   7.4 % $ 205,326 $ 192,636 $ 12,690   6.6 %  

Note: The same store grouping above represents properties owned and operating for both of the entire years ended December 31, 2016 and 2015, and which are not conducting or planning to conduct substantial development or redevelopment activities.

1.

  Includes 20 properties sold in 2015, along with two properties sold during the first six months of 2016.  

2.

Includes revenues that are reflected as Resident Services Revenue on the accompanying consolidated statements of comprehensive income.             Table 5 American Campus Communities, Inc. and Subsidiaries 2016 Outlook (dollars in thousands, except share and per share data)   Original Current Low     High Low     High   Net income $ 90,800 $ 101,000 $ 108,500 $ 118,800 Noncontrolling interests 900 1,100 1,150 1,300 Gain from disposition of real estate — — (17,400 ) (17,400 ) Depreciation and amortization   195,700     206,100     202,250     206,800   Funds from operations ("FFO") $ 287,400 $ 308,200 $ 294,500 $ 309,500   Elimination of operations from on-campus participating properties (11,000 ) (11,400 ) (11,000 ) (11,400 ) Contribution from on-campus participating properties   3,800     4,400     3,800     4,400   Funds from operations - modified ("FFOM") $ 280,200   $ 301,200   $ 287,300   $ 302,500     Net income per share - diluted $ 0.69   $ 0.77   $ 0.83   $ 0.91     FFO per share - diluted $ 2.19   $ 2.35   $ 2.25   $ 2.36     FFOM per share - diluted $ 2.14   $ 2.30   $ 2.19   $ 2.31     Weighted-average common shares outstanding - diluted   130,950,000     130,950,000     130,950,000     130,950,000    

The company believes that the financial results for the fiscal year ending December 31, 2016 may be affected by, among other factors:

• national and regional economic trends and events;
• the timing of acquisitions and/or dispositions;
• interest rate risk;
• the timing of commencement of construction on owned development projects;
• the ability of the company to be awarded and the timing of the commencement of construction on third-party development projects;
• university enrollment, funding and policy trends;
• the ability of the company to earn third-party management revenues;
• the amount of income recognized by the taxable REIT subsidiaries and any corresponding income tax expense;
• the ability of the company to integrate acquired properties;
• the outcome of legal proceedings arising in the normal course of business; and
• the success of releasing the company’s owned properties for the 2016-2017 academic year.

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American Campus Communities, Inc., AustinRyan Dennison, 512-732-1000