As filed with the Securities and Exchange Commission on May 14, 2010

Registration Statement No. 333-      

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

Form S-11

FOR REGISTRATION

UNDER

THE SECURITIES ACT OF 1933

OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

 

 

 

 

CAMPUS CREST COMMUNITIES, INC.

(Exact Name of Registrant as Specified in Governing Instruments)

 

 

 

 

2100 Rexford Road, Suite 414
Charlotte, NC 28211
(704) 496-2500
(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 

 

Ted W. Rollins
Chief Executive Officer
2100 Rexford Road, Suite 414
Charlotte, NC 28211
(704) 496-2500
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)

 

 

 

 

Copies to:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

Subject to Completion
Preliminary Prospectus dated May 14, 2010

 

PROSPECTUS

 

 

           Shares

 

Campus Crest Communities, Inc.

 

Common Stock

 

 

Campus Crest Communities, Inc. is a self-managed, self-administered, vertically-integrated developer, builder, owner and manager of high-quality, purpose-built student housing. Prior to this offering, our business was conducted through Campus Crest Group, LLC, which is wholly-owned and controlled by Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, and certain members of their families. Upon completion of this offering and our formation transactions, we will own interests in 27 student housing properties containing approximately 13,580 beds. As of February 28, 2010, our properties had an average age of approximately 1.7 years.

 

This is our initial public offering. We are offering           shares of our common stock, $0.01 par value per share. We expect the initial public offering price of our common stock to be between $      and $      per share. Currently, no public market exists for our common stock. We expect to apply to have our common stock listed on The New York Stock Exchange under the symbol ‘‘     .”

 

Upon completion of this offering and our formation transactions, Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, will own indirectly an aggregate of           units of limited partnership interests in our operating partnership which, on a fully-diluted basis, will represent approximately     % of our outstanding common stock.

 

We are organized as a Maryland corporation and intend to elect and qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2010. Subject to certain exceptions described in this prospectus, upon completion of this offering, our charter will provide that no person may own, or be deemed to own, more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate.

 

Investing in our common stock involves significant risks. You should read the section entitled “Risk Factors” beginning on page 22 of this prospectus for a discussion of the risks that you should consider before investing in our common stock.

 

 

The underwriters may purchase up to an additional           shares of our common stock at the initial public offering price less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments, if any.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver the common stock on or about          , 2010.

 

 

 

 

RAYMOND JAMES

 

 

The date of this prospectus is          , 2010

 

TABLE OF CONTENTS

 

 

 

 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us. We have not, and the underwriters have not, authorized anyone to provide you with any additional or different information. If anyone provides you with additional or different information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or such other date as specified herein. Our business, financial condition, liquidity, funds from operations, or “FFO,” results of operations and prospects may have changed since such dates.

 

Unless the context otherwise requires, references to “company,” “we,” “us” and “our” refer to (i) Campus Crest Communities, Inc., a Maryland corporation, and its consolidated subsidiaries, including Campus Crest Communities Operating Partnership, LP, a Delaware limited partnership, through which we will conduct substantially all of our business, which we refer to as “our operating partnership,” except where it is clear from the context that the term means only the

issuer of the common stock, Campus Crest Communities, Inc., and (ii) with respect to the period prior to the completion of this offering, the business of our predecessor entities through which Campus Crest Group, LLC, a North Carolina limited liability company, or “Campus Crest Group,” carried out the development, construction, ownership and management of the properties that we will own interests in upon completion of this offering and our formation transactions; references to “predecessor entities” refer to one or more of the joint venture arrangements that owned our properties and the entities through which Campus Crest Group carried out our business; references to “MXT Capital” refer to MXT Capital, LLC, a Delaware limited liability company, which is wholly-owned and controlled by Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, and certain members of their families, and is the sole owner of Campus Crest Group; references to the “Ricker Group” refer to Carl H. Ricker, Jr. and the vehicles through which Mr. Ricker or an affiliated party held interests in our predecessor entities; references to “HSRE” refer to Harrison Street Real Estate Capital and its affiliates that held interests in our predecessor entities; references to “common stock” refer to shares of common stock, $0.01 par value per share, in Campus Crest Communities, Inc.; and references to “OP units” refer to limited partnership units in our operating partnership that are exchangeable, subsequent to the one-year anniversary of the completion of this offering, for cash or, at our option, common stock on a one-for-one basis. Unless otherwise indicated, the information contained in this prospectus assumes that (a) the common stock to be sold in this offering is sold at $      per share, the mid-point of the price range set forth on the cover page of this prospectus, and (b) the underwriters’ overallotment option is not exercised.

 

 

Industry and Market Data

 

We use market data, industry forecasts and projections throughout this prospectus. We have obtained portions of this information from a market study prepared for us by Michael Gallis & Associates (“MGA”), a North Carolina-based strategic planning and design firm, in connection with this offering. The forecasts and projections are based on MGA’s experience and data published by the U.S. Department of Education and other sources, and there is no assurance that any of the projections will be accurate. We believe that the study is reliable, but we have not independently verified the information in the study nor have we ascertained any underlying assumptions relied upon therein. While we are not aware of any misstatements regarding the industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

 

PROSPECTUS SUMMARY

	•	Developing properties will expose us to additional risks beyond those associated with owning and operating student housing properties, and could materially and adversely affect us.
	•	We rely on our relationships with the colleges and universities from which our properties draw student-tenants and the policies and reputations of these schools; any deterioration in our relationships with such schools or changes in the schools’ admissions or residency policies or reputations could materially and adversely affect us.
	•	Our results of operations are subject to risks inherent in the student housing industry, such as an annual leasing cycle and limited leasing period, which could materially and adversely affect us.
	•	Competition from other student housing properties, including on-campus housing and traditional multi-family housing located in close proximity to the colleges and universities from which we draw student-tenants, may reduce the demand for our properties, which could materially and adversely affect us.
	•	Our success depends on key personnel whose continued service is not guaranteed, and their departure could materially and adversely affect us.
	•	Adverse economic conditions and dislocation in the credit markets have had a material and adverse effect on us and may continue to materially and adversely affect us.
	•	The current economic environment could reduce enrollment and limit the demand for our properties, which could materially and adversely affect us.
	•	In the past we have experienced significant losses and negative cash flows from operations; if these trends continue, we could be materially and adversely affected.
	•	If we are unable to acquire properties on favorable terms, our future growth could be materially and adversely affected.
	•	Our strategy of investing in properties located in medium-sized college and university markets may not be successful, which could materially and adversely affect us.
	•	Our indebtedness exposes us to a risk of default and will reduce our free cash flow, which could materially and adversely affect us.

	•	Joint venture investments could be materially and adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and disputes between our co-venturers and us.
	•	Our management team has not previously operated a REIT, and this inexperience could materially and adversely affect us.
	•	Our performance and the value of our properties are subject to risks associated with real estate and with the real estate industry, which could materially and adversely affect us.
	•	Provisions of our charter allow our board of directors to authorize the issuance of additional securities, which may limit the ability of a third party to acquire control of us through a transaction that our stockholders believe to be in their best interest.
	•	Provisions of Maryland law may limit the ability of a third party to acquire control of us, which, in turn, may negatively affect our stockholders’ ability to realize a premium over the market price of our common stock.
	•	The ownership limitations in our charter may restrict or prevent you from engaging in certain transfers of our common stock, which may delay or prevent a change in control of us that our stockholders believe to be in their best interest.
	•	We may not be able to make our initial distributions or maintain our initial, or any subsequent, distribution rate.
	•	A public market for our common stock may never develop and your ability to sell your shares of our common stock may be limited.
	•	Common stock eligible for future sale may adversely affect the market price of our common stock.
	•	Future offerings of debt or equity securities ranking senior to our common stock may limit our operating and financial flexibility and may adversely affect the market price of our common stock.
	•	We have not obtained appraisals of our properties in connection with this offering and the price we pay to our existing investors for their interests in our predecessor entities may exceed our properties’ market value.
	•	Our failure to qualify or remain qualified as a REIT could have a material and adverse effect on us and the market price of our common stock.
	•	To qualify and remain qualified as a REIT, we will likely rely on the availability of equity and debt capital to fund our business.
	•	Complying with REIT requirements may cause us to forgo otherwise attractive investment opportunities, which could materially and adversely affect us.

																		Occupancy
										Fall 2009				Distance to				as of
						Year				Overall				Campus				February 28,				Number				Number
		City		State		Opened		Primary University Served		Enrollment				(miles)				2010				of Units				of Beds
		Wholly-Owned Properties
1		Asheville		NC		2005		University of NC - Asheville			3,695				0.1				94	%			154				448
2		Carrollton		GA		2006		University of West Georgia			11,500				0.1				97	%			168				492
3		Las Cruces		NM		2006		New Mexico State University			18,497				0.4				84	%			168				492
4		Milledgeville		GA		2006		Georgia College & State University			6,633				0.1				98	%			168				492
5		Abilene		TX		2007		Abilene Christian University			4,838				0.5				75	%			192				504
6		Ellensburg		WA		2007		Central Washington University			10,187				0.5				99	%			192				504
7		Greeley		CO		2007		University of Northern Colorado			12,711				1.0				74	%			192				504
8		Jacksonville		AL		2007		Jacksonville State University			9,351				0.2				80	%			192				504
9		Mobile—Phase I (1)		AL		2007		University of South Alabama			14,522				On-Campus				93	%			192				504
10		Mobile—Phase II (1)		AL		2008		University of South Alabama			14,522				On-Campus				96	%			192				504
11		Nacogdoches		TX		2007		Stephen F. Austin University			12,845				0.4				96	%			196				522
12		Cheney		WA		2008		Eastern Washington University			11,302				0.5				97	%			192				512
13		Jonesboro		AR		2008		Arkansas State University			12,156				0.2				73	%			192				504
14		Lubbock		TX		2008		Texas Tech University			30,049				2.1				79	%			192				504
15		Stephenville		TX		2008		Tarleton State University			8,598				0.8				97	%			192				504
16		Troy		AL		2008		Troy University			6,679				0.4				94	%			192				514
17		Waco		TX		2008		Baylor University			14,614				0.8				89	%			192				504
18		Wichita		KS		2008		Wichita State University			14,823				1.1				79	%			192				504
19		Wichita Falls		TX		2008		Midwestern State University			6,341				1.2				65	%			192				504
20		Murfreesboro		TN		2009		Middle Tennessee State			25,188				0.8				90	%			186				504
21		San Marcos		TX		2009		Texas State University			30,816				1.7				98	%			192				504
Sub Total of Wholly Owned Properties											13,327	(2)			0.6	(2)			88	% (2)			3,920				10,528

																				Occupancy
												Fall 2009				Distance to				as of
								Year				Overall				Campus				February 28,				Number				Number
				City		State		Opened		Primary University Served		Enrollment				(miles)				2010				of Units				of Beds
				Joint Venture Properties — 49.9% Ownership Interest
	22			Lawrence (3)		KS		2009		University of Kansas			29,242				1.6				64	%			172				500
	23			Moscow (1)		ID		2009		University of Idaho			11,957				0.5				45	%			192				504
	24			San Angelo		TX		2009		Angelo State University			6,387				0.3				86	%			192				504
	25			Conway (4)		AR		2010		University of Central Arkansas			11,781				0.4				NA				180				504
	26			Huntsville (4)		TX		2010		Sam Houston State University			16,772				0.2				NA				192				504
	27			Statesboro (4)		GA		2010		Georgia Southern University			19,086				0.7				NA				200				536
Sub Total of Joint Venture Properties													15,871	(2)			0.6	(2)			65	% (2)			1,128				3,052
Total Properties													13,892	(2)			0.6	(2)			85	% (2)			5,048				13,580

(1)		Property subject to a ground lease.
(2)		Average.
(3)		Occupancy based on 300 beds available for the 2009-2010 academic year; the property has been expanded and now has a total of 500 beds available for the 2010-2011 academic year.
(4)		Property currently under construction, with completion and occupancy expected for the 2010-2011 academic year.

	•	consolidate the ownership of our properties and the student housing business of Campus Crest Group into our operating partnership and its wholly-owned subsidiaries;
	•	facilitate this offering; and
	•	enable us to qualify as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2010.

	•	Pursuant to the terms of a contribution agreement, MXT Capital will contribute to our operating partnership its student housing business and interests in the predecessor entities in exchange for     OP units, representing a     % limited partnership interest in our operating partnership.

	•	Campus Crest Group will distribute to MXT Capital its interests in two parcels of land consisting of 20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties; MXT Capital has agreed not to build student housing properties on these parcels in the future.
	•	Campus Crest Group will distribute to MXT Capital its interest in an entity that will own a minority interest in a 1999 Pilatus PC-12 single-engine turboprop airplane. Upon completion of this offering, we will lease this aircraft on payment terms structured to equal our pro rata carrying and operating costs of the aircraft based on our actual usage.
	•	Pursuant to the terms of a contribution agreement, the Ricker Group will contribute to our operating partnership its interests in the predecessor entities and the entire ownership

		interest in the entities that own fee interests in certain properties that were subject to ground leases with the Ricker Group prior to the completion of our formation transactions in exchange for approximately $26.7 million and 266,667 OP units, representing a     % limited partnership interest in our operating partnership.

	•	Pursuant to the terms of contribution agreements and purchase and sale agreements, certain third-party investors will contribute to our operating partnership all of their interests in the predecessor entities in exchange for approximately $10.7 million and 53,000 OP units, representing a     % limited partnership interest in our operating partnership. Under the terms of these agreements, these third-party investors will also provide us with certain limited representations and warranties with respect to their ownership interests being contributed to our operating partnership and will indemnify us for any losses resulting from breaches of their representations, warranties and covenants.
	•	In exchange for approximately $28.6 million, HSRE will sell to our operating partnership (i) all of its interests in each of The Grove at Milledgeville and The Grove at San Marcos, with the result that we will own a 100% interest in each of these properties and (ii) a 49.8% interest in a joint venture that will own 100% of each of The Grove at Conway, The Grove at Huntsville, The Grove at Lawrence, The Grove at Moscow, The Grove at San Angelo and The Grove at Statesboro, with the result that we will own a 49.9% interest in these properties.

	•	we will own approximately     % of the outstanding OP units, MXT Capital will own approximately     % of the outstanding OP units, the Ricker Group will own approximately     % of the outstanding OP units and certain third-party investors will own, in the aggregate, approximately     % of the outstanding OP units;
	•	our operating partnership will own 100% interests in 21 of our properties;
	•	our operating partnership will own an indirect 49.9% interest in The Grove at Conway, The Grove at Huntsville, The Grove at Lawrence, The Grove at Moscow, The Grove at San Angelo and The Grove at Statesboro; and
	•	we will own each of the entities through which Campus Crest Group conducted its student housing activities.

	•	Our operating partnership will issue to MXT Capital          OP units in exchange for MXT Capital’s contribution to our operating partnership of the interests owned by MXT Capital in the predecessor entities and its student housing business.
	•	MXT Capital will enter into a tax protection agreement with us. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of any of our properties for a period of           years, or the tax protection period, in a transaction that would cause MXT Capital or its members to realize taxable gain that was “built-in,” or the built-in gain, to such properties at the time of their contribution to our operating partnership. All of our properties will have such built-in gain. If we sell one or more of our properties during the tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to it or its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments. Consequently, our ability to sell or dispose of our properties will be substantially restricted by this obligation to make payments to MXT Capital during the tax protection period if we sell a property.

	•	We will enter into a registration rights agreement with MXT Capital pursuant to which we will agree, among other things, to register the resale of any common stock that may be exchanged for the OP units issued in our formation transactions. This agreement requires us to seek to register all common stock that may be exchanged for OP units effective as of that date which is 12 months following completion of this offering on a shelf registration statement under the Securities Act of 1933, as amended, or the “Securities Act.”
	•	MXT Capital will receive Campus Crest Group’s interests in two parcels of land consisting of 20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties.
	•	We will pay the Ricker Group approximately $26.7 million of the net proceeds from this offering and our operating partnership will issue to the Ricker Group 266,667 OP units in exchange for the Ricker Group’s contribution to our operating partnership of the interests

		owned by the Ricker Group in the predecessor entities and in the entities that have entered into ground leases with us relating to eight properties.

	•	Approximately $6.0 million of the net proceeds from this offering will be used to repay indebtedness owed by us to RHR, LLC, an entity owned by MXT Capital and the Ricker Group; RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us.
	•	Approximately $4.0 million of the net proceeds from this offering will be used to repay our indebtedness to Capital Bank, an entity in which the Ricker Group has an ownership interest and of which Carl H. Ricker, Jr. is a director.
	•	Each of Ted W. Rollins, Michael S. Hartnett and Carl H. Ricker, Jr. will be released from certain personal guarantees with respect to mortgage and construction indebtedness with aggregate principal amounts of $      million, $      million and $      million, respectively, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness described above.
	•	Indebtedness incurred by two entities through which MXT Capital conducts aspects of its business will be repaid by MXT Capital. MXT Capital will receive $4.5 million of the net proceeds from this offering, which it will immediately use to make capital contributions to these entities. These entities will, in turn, immediately use the capital contributions received from MXT Capital solely to repay indebtedness.
	•	Our executive officers and certain members of our management team will receive material benefits, including:

	•	a grant of 216,000 shares of restricted common stock pursuant to the Campus Crest Communities, Inc. 2010 Incentive Award Plan, or the “2010 Incentive Award Plan” (including 100,000 shares of restricted common stock granted in exchange for awards outstanding under Campus Crest Group’s deferred compensation plan);
	•	employment agreements providing for salary, bonus and other benefits, including severance upon a termination of employment under certain circumstances, as described under “Management—Employment Agreements;”
	•	indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against them as officers; and
	•	upon the completion of this offering we have agreed to pay to Donald L. Bobbitt, Jr., an executive vice president and our chief financial officer, and Howard J. Weissman, a senior vice president and our corporate controller, cash bonuses of $200,000 and $125,000, respectively.

	•	Each of our non-employee directors will receive material benefits, including:

	•	annual and per-meeting fees described under “Management—Director Compensation;” and
	•	indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against him as a director.

		Pro Forma Campus
		Crest Communities,				Historical Campus Crest Communities
		Inc.				Predecessor
		Year Ended
		December 31,				Year Ended December 31,
		2009				2009				2008				2007
		(unaudited)				(in thousands)
Revenues:
Student housing leasing		$	45,021			$	43,708			$	30,813			$	15,598
Student housing services			2,289				2,265				798				110
Development, construction and management services			24,540				60,711				2,505				—
Total revenues			71,850				106,684				34,116				15,708
Operating expenses:
Student housing operations			23,707				23,155				14,890				7,470
Development, construction and management services			24,847				60,200				2,147				—
General and administrative			6,450				5,617				5,422				3,467
Ground leases			264				264				224				40
Write-off of pre-development costs			1,211				1,211				203				—
Depreciation and amortization			18,598				18,371				13,573				5,765
Total operating expenses			75,077				108,818				36,459				16,742
Equity in loss of uncombined entities			(565	)			(59	)			—				—
Operating loss			(3,792	)			(2,193	)			(2,343	)			(1,034	)
Nonoperating income (expenses):
Interest expense			(8,646	)			(15,871	)			(14,946	)			(6,583	)
Change in fair value of interest rate derivatives			90				797				(8,758	)			(2,115	)
Income taxes			(73	)			—				—				—
Other income (expense)			44				44				(50	)			100
Total nonoperating expenses			(8,585	)			(15,030	)			(23,754	)			(8,598	)
Net loss			(12,377	)			(17,223	)			(26,097	)			(9,632	)
Net loss attributable to noncontrolling interest			(864	)			(10,486	)			(870	)			(2,083	)
Net loss attributable to Predecessor		$	(11,513	)		$	(6,737	)		$	(25,227	)		$	(7,549	)

		Pro Forma
		Campus Crest				Historical Campus Crest
		Communities, Inc.				Communities Predecessor
		As of
		December 31,				As of December 31,
		2009				2009				2008
		(unaudited)				(in thousands)
Student housing properties		$	368,229			$	347,157			$	326,217
Accumulated depreciation			(38,999	)			(38,999	)			(20,794	)
Development in process			3,300				3,300				15,742
Investment in real estate, net			332,530				311,458				321,165
Other assets			48,272				20,338				20,990
Total assets		$	380,802			$	331,796			$	342,155
Mortgage and construction loans		$	132,304			$	329,102			$	322,426
Lines of credit and other debt			—				14,070				9,237
Other liabilities			26,764				31,340				32,606
Total liabilities			159,068				374,512				364,269
Equity
Owners’ equity (deficit)			271,754				(50,090	)			(42,502	)
Noncontrolling interest			(50,020	)			7,374				20,388
Total equity			221,734				(42,716	)			(22,114	)
Total liabilities and equity		$	380,802			$	331,796			$	342,155
Other Data:
			Pro Forma Campus Crest Communities, Inc.
			Year Ended December 31, 2009
			(unaudited)
Funds from operations (“FFO”) (1):
Net loss		$	(11,513	)
Net loss attributable to noncontrolling interest			(864	)
Real estate related depreciation and amortization			18,432
Equity portion of real estate related depreciation and amortization on equity investees			355
FFO		$	6,410

		Historical Campus Crest Communities
		Predecessor
		As of December 31,
		2009				2008				2007
Cash flow information:
Net cash provided by (used in) operations		$	4,353			$	1,264			$	(1,209	)
Net cash used in investing			(23,552	)			(148,385	)			(113,043	)
Net cash provided by financing			11,060				144,781				126,061
Selected Property Information:
		As of December 31,
		2009				2008				2007
Units			4,476				3,542				1,814
Beds			12,036				9,520				4,966
Occupancy			84	%			78	%			91	%

(1)		FFO is used by industry analysts and investors as a supplemental operating performance measure for REITs. We calculate FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or “NAREIT.” FFO, as defined by NAREIT, represents net income (loss) determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We use FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating expenses. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially and adversely impact our results from operations, the utility of FFO as a measure of our performance is limited. While FFO is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating FFO and, accordingly, FFO as disclosed by such other REITs may not be comparable to FFO published herein. Therefore, we believe that in order to facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (loss) as presented in the combined financial statements and the other financial statements included elsewhere in this prospectus. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of the properties’ financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

Common stock offered by us		shares(1)
Common stock to be outstanding after this offering		shares(1)(2)
Common stock and OP units to be outstanding after this offering		shares/units(1)(2)(3)
Use of proceeds		We will contribute the net proceeds from this offering to our operating partnership, which will use the proceeds as follows:
		•  approximately $215.8 million to reduce outstanding mortgage and construction loan indebtedness and pay associated costs;
		•  approximately $4.0 million to repay unsecured indebtedness to Capital Bank;
		•  approximately $6.0 million to repay unsecured indebtedness to RHR, LLC; RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us;
		•  approximately $4.5 million will be paid to MXT Capital, which will immediately use such amount to make capital contributions to certain entities that will, in turn, immediately use the capital contributions solely to repay indebtedness;
		•  approximately $28.6 million to acquire interests in our properties from HSRE and satisfy associated obligations to HSRE;
		•  approximately $26.7 million to acquire interests in our properties from the Ricker Group (in addition to 266,667 OP units);
		•  approximately $10.7 million to acquire interests in our properties from certain third-party investors (in addition to 53,000 OP units); and
		•  approximately $      million for working capital and general corporate purposes.
Ownership and transfer restrictions		Our charter, subject to certain exceptions, prohibits any person from directly or indirectly owning more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”

Risk factors		Investing in our common stock involves significant risks. You should carefully read and consider the information set forth under “Risk Factors” and all other information in this prospectus before investing in our common stock.
Proposed New York Stock Exchange symbol		“          ”

(1)		Excludes           shares of common stock issuable upon exercise of the underwriters’ overallotment option.
(2)		Includes the grant of 100,000 shares of restricted common stock to certain of our executive officers and certain members of our management team in exchange for awards outstanding under Campus Crest Group’s deferred compensation plan and a grant of 116,000 shares of restricted common stock to certain of our executive officers and certain members of our management team.
(3)		Includes the issuance of an aggregate of           OP units to MXT Capital, the Ricker Group and certain third-party investors in connection with our formation transactions.

 

Investment in our common stock involves significant risks. You should therefore carefully consider the material risks of an investment in our common stock that are discussed in this section, as well as the other information contained in this prospectus, before making an investment decision. The occurrence of any of the following risks could materially and adversely affect our financial condition, results of operations, cash flow, per share trading price and ability to satisfy our debt service obligations and pay dividends or distributions to you and could cause you to lose all or a significant part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

 

Risks Related to Our Business and Properties

 

Developing properties will expose us to additional risks beyond those associated with owning and operating student housing properties, and could materially and adversely affect us.

 

Our future growth will depend, in part, upon our ability to successfully complete the three properties that we are currently building and the five identified sites that we have under contract and expect to commence building upon completion of this offering and to successfully identify and plan additional development opportunities. Our development activities may be adversely affected by:

 

 

Our development activities may be adversely affected by circumstances beyond our control, including: work stoppages; labor disputes; shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers; changes in laws relating to union organizing activity; lack of adequate utility infrastructure and services; our reliance on local subcontractors, who may not be adequately capitalized or insured; and shortages, delay in availability, or fluctuations in prices of, building materials. Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, developing one or more of our properties. If we are unable to recover these increased costs by raising our lease rates, our financial performance and liquidity could be materially and adversely affected.

 

Additionally, due to the amount of time required for planning, constructing and leasing of development properties, we may not realize a significant cash return for several years. If any of the above events occur, the development of properties may hinder our growth and have an adverse effect on our results of operations and cash flows. In addition, new development activities, regardless of whether or not they are ultimately successful, typically require substantial time and attention from management.

 

Maintaining our development capabilities involves significant expense, including compensation expense for our development personnel and related overhead. To the extent we cease or limit our development activity, this expense will not be offset by revenues from our development activity.

 

Our properties located in Conway, Arkansas, Huntsville, Texas and Statesboro, Georgia are currently under construction and subject to the risks described above. Upon completion, in aggregate, these properties will comprise approximately 11.4% of our total available beds.

 

In the event we do not complete the construction of these properties by the beginning of the 2010-2011 academic year, the student-tenants with whom we have signed leases may require us to provide them with alternative housing. We have not made any arrangements for such alternative housing and we would likely incur significant expenses in the event we are obligated to provide such housing. If construction is not completed prior to the beginning of the 2010-2011 academic year, these student-tenants may also attempt to break their leases and our occupancy at, and rental revenue from, these properties for the 2010-2011 academic year may suffer, which could materially and adversely affect us.

 

In addition, 12 of our properties are subject to liens or claims for materials or labor relating to disputes with subcontractors or other parties that were involved in the development and construction process. We have recorded a liability of approximately $2.6 million related to these liens and claims as of December 31, 2009. There can be no assurance that we will not be required to pay amounts greater than our currently recorded liabilities in order to obtain the release of the liens or settle these claims. Further, we may not be able to obtain long-term financing for these properties until the liens are released.

 

We expect that, subject to completion of this offering, we will acquire land and commence building properties for our own account on five identified sites that we have under contract, with completion targeted for the 2011-2012 academic year. For each of these five sites, we have conducted significant pre-development activities and are in the process of obtaining the necessary zoning and site plan approvals. These and any other developments will be subject to the development risks described above with regard to the three properties that are currently under development.

 

We may develop properties in geographic regions within the United States in which we do not currently operate. To the extent we choose to develop properties in new geographic regions, we will not possess the same level of familiarity with development in these markets, which could

adversely affect our ability to develop such properties successfully or at all or to achieve expected performance, which could materially and adversely affect us.

 

We rely on our relationships with the colleges and universities from which our properties draw student-tenants and the policies and reputations of these schools; any deterioration in our relationships with such schools or changes in the schools’ admissions or residency policies or reputations could materially and adversely affect us.

 

We rely on our relationships with colleges and universities for referrals of prospective student-tenants or for mailing lists of prospective student-tenants and their parents. Many of these schools own and operate on-campus student housing which compete with our properties for student-tenants. The failure to maintain good relationships with these schools could therefore have a material adverse effect on us. If schools refuse to provide us with referrals or to make lists of prospective student-tenants and their parents available to us or increase the cost of these lists, the lack of such referrals, lists or increased cost could have a material adverse effect on us.

 

Changes in admission and housing policies could adversely affect us. For example, if a school reduces the number of student admissions or requires that a certain class of students (e.g., freshman) live in on-campus housing, the demand for beds at our properties may be reduced and our occupancy rates may decline. While we may engage in marketing efforts to compensate for any such policy changes, we may not be able to effect such marketing efforts prior to the commencement of the annual lease-up period, or our additional marketing efforts may not be successful, which could reduce the demand for our properties and materially and adversely affect us.

 

It is also important that the schools from which our properties draw student-tenants maintain good reputations and are able to attract the desired number of incoming students. Any degradation in a school’s reputation could inhibit its ability to attract students and reduce the demand for our properties.

 

Our results of operations are subject to risks inherent in the student housing industry, such as an annual leasing cycle and limited leasing period; which could materially and adversely affect us.

 

We generally lease our properties for 11.5-month terms. Therefore, our properties must be entirely re-leased each year, exposing us to more leasing risk than property lessors that lease their properties for longer terms. Student housing properties are also typically leased during a limited leasing period that generally begins in January and ends in August of each year. We are therefore highly dependent on the effectiveness of our marketing and leasing efforts and personnel during this leasing period. We will be subject to heightened leasing risk at properties under development and at properties we may acquire in the future due to our lack of experience leasing such properties. Any significant difficulty in leasing our properties would adversely affect our results of operations, financial condition and ability to pay distributions on our common stock and would likely have a negative impact on the trading price of our common stock.

 

Additionally, student-tenants may be more likely to default on their lease obligations during the summer months, which could further reduce our revenues during this period. Although we typically require a student-tenant’s lease obligations to be guaranteed by a parent, we may have to spend considerable effort and expense in pursuing payment upon a defaulted lease, and our efforts may not be successful.

 

Competition from other student housing properties, including on-campus housing and traditional multi-family housing located in close proximity to the colleges and universities

from which we draw student-tenants may reduce the demand for our properties, which could materially and adversely affect us.

 

Our properties compete with properties owned by universities, colleges, national and regional student housing businesses and local real estate concerns. On-campus student housing has inherent advantages over off-campus student housing (such as the majority of our properties), due to its physical location on the campus and integration into the academic community, which may cause student-tenants to prefer on-campus housing to off-campus housing. Additionally, colleges and universities may have financial advantages that allow them to provide student housing on more attractive terms than we are able to. For example, colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than private, for-profit real estate concerns, such as us.

 

There are a number of student housing properties that are located near or in the same general vicinity of many of our properties and that compete directly with our properties. Such competing student housing properties may be newer, located closer to campus, charge less rent, possess more attractive amenities, offer more services or offer shorter lease terms or more flexible lease terms than our properties. Competing properties could reduce demand for our properties and materially and adversely affect us.

 

Revenue at a particular property could also be adversely affected by a number of other factors, including the construction of new on-campus and off-campus housing, decreases in the general levels of rents for housing at competing properties, decreases in the number of students enrolled at one or more of the colleges or universities from which the property draws student-tenants and other general economic conditions.

 

Although we believe no participant in the student housing industry holds a dominant market share, we will compete with larger national companies, colleges and universities that have greater resources and superior access to capital. Furthermore, we believe that a number of other large national companies with substantial financial and marketing resources may be potential entrants in the student housing business. The activities of any of these companies, colleges or universities could cause an increase in competition for student-tenants and for the acquisition, development and management of other student housing properties, which could reduce the demand for our properties.

 

Our success depends on key personnel whose continued service is not guaranteed, and their departure could materially and adversely affect us.

 

We are dependent upon the efforts of our key personnel, particularly those of Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer. These individuals have extensive experience in our business, including sourcing attractive investment opportunities, development activities, financing activities, university relations and leasing. Messrs. Rollins and Hartnett have directed the operations of our predecessor entities and each has over 20 years of experience in providing service-enriched housing and approximately seven years of student housing experience. The loss of the services of either Mr. Rollins or Mr. Hartnett could materially and adversely affect us.

 

Adverse economic conditions and dislocation in the credit markets have had a material and adverse effect on us and may continue to materially and adversely affect us.

 

We have recently experienced unprecedented levels of volatility in the capital markets, a reduction in the availability of credit and intense recessionary pressures, which have had an adverse effect on our results of operations and our ability to borrow funds. For example, lenders

are generally imposing more stringent lending standards and applying more conservative valuations to properties. This has limited the amount of indebtedness we have been able to obtain, and has impeded our ability to develop new properties and to replace construction financing with permanent financing. If these conditions continue, our business and our growth strategy may be materially and adversely affected.

 

The challenging economic environment may continue to adversely affect us by, among other things, limiting or eliminating our access to financing, which would adversely affect our ability to develop and refinance properties and pursue acquisition opportunities. Significantly more stringent lending standards and higher interest rates may reduce our returns on investment and increase our interest expense, which could adversely affect our financial performance and liquidity. Additionally, the limited amount of financing currently available may reduce the value of our properties, limit our ability to borrow against such properties and, should we choose to sell a property, impair our ability to dispose of such property at an attractive price or at all, which could materially and adversely affect us.

 

The current economic environment could reduce enrollment and limit the demand for our properties, which could materially and adversely affect us.

 

A continuation of ongoing economic conditions that adversely affect household disposable income, such as high unemployment levels, weak business conditions, reduced access to credit, increasing tax rates and high fuel and energy costs, could reduce overall student leasing or cause student-tenants to shift their leasing practices as students may determine to forego college or live at home and commute to college.

 

In addition, as a result of general economic weakness, many students may be unable to obtain student loans on favorable terms. If student loans are not available or their costs are prohibitively high, enrollment numbers for schools from which we draw student-tenants may decrease, resulting in a decrease in the demand for, and consequently the occupancy rates at and rental revenue from, our properties. Accordingly, the continuation or deterioration of current economic conditions could materially and adversely affect us.

 

In the past we have experienced significant losses and negative cash flows from operations; if these trends continue, we could be materially and adversely affected.

 

We have recently incurred significant losses and negative cash flows from operations. These results have had a negative impact on our financial condition. Although we anticipate that upon the completion of this offering and our formation transactions we will be adequately capitalized and be able to resume our historical levels of development activity, there can be no assurance that our business will become profitable in the future and additional losses and negative cash flows from operations will not be incurred. If these trends continue in the future, our financial performance, liquidity and our ability to operate our business as a going concern could be materially and adversely affected.

 

If we are unable to acquire properties on favorable terms, our future growth could be materially and adversely affected.

 

Our future growth will depend, in part, upon our ability to acquire new properties on favorable terms. Acquisition opportunities may not be available to us on terms that we deem acceptable, and we may be unsuccessful in consummating acquisition opportunities. Our ability

to acquire properties on favorable terms and successfully operate them may be adversely affected by:

 

 

Our failure to identify and consummate property acquisitions on attractive terms or the failure of any acquired properties to meet our expectations could materially and adversely affect our future growth.

 

Our strategy of investing in properties located in medium-sized college and university markets may not be successful, which could materially and adversely affect us.

 

Our business strategy involves investing in properties located in medium-sized college and university markets, which are smaller than larger educational markets. Larger educational markets, such as Boston, Massachusetts or Washington, D.C., often have multiple colleges and universities that have larger enrollments than schools located in medium-sized college and university markets and attract students nationally and internationally. The colleges and universities that our properties draw student-tenants from typically have smaller enrollments than schools in larger educational markets and tend to attract students from within the region in which the school is located. If the schools in our markets experience reduced enrollment, for example due to adverse economic conditions, or are unable to attract sufficient students to achieve a desired class size, the pool of prospective student-tenants for our properties will be reduced. This could have the result of reducing our occupancy and lowering the revenue from our properties, which could materially and adversely affect our financial performance and liquidity.

 

Our indebtedness exposes us to a risk of default and will reduce our free cash flow, which could materially and adversely affect us.

 

Upon completion of this offering and the application of the net proceeds therefrom, our total consolidated indebtedness will be approximately $132.3 million. We also expect to incur significant additional indebtedness in connection with the development activities that we expect to undertake upon completion of this offering. Our debt service obligations will expose us to the risk of default and reduce cash available to invest in our business or pay distributions that are necessary to qualify and remain qualified as a REIT. Although we intend to limit the sum of the

outstanding principal amount of our consolidated indebtedness to not more than     % of our total market capitalization, our board of directors may modify or eliminate this limitation at any time without the approval of our stockholders. Furthermore, our charter does not contain any limitation on the amount of indebtedness that we may incur. In the future we may incur substantial indebtedness in connection with the development or acquisition of additional properties.

 

In addition, the tax protection agreement will require us to maintain a minimum level of indebtedness of $      throughout the tax protection period in order to allow a sufficient amount of debt to be allocable to MXT Capital and its members to avoid certain adverse tax consequences. If we fail to maintain such minimum indebtedness throughout the tax protection period, and as a consequence MXT Capital or its members incur federal, state or local tax liabilities, we would be required to make indemnifying payments to them, which would inhibit our ability to reduce our indebtedness below the amount required to be maintained.

 

Our indebtedness and the limitations imposed on us by our indebtedness could have significant adverse consequences, including the following:

 

 

Compliance with the provisions our debt agreements, including the financial and other covenants, such as the maintenance of specified financial ratios, could limit our flexibility and a default under these agreements could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs, which could materially and adversely affect us. We are currently not in compliance with certain covenants under the loan documentation relating to various lending arrangements to which we are party. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Consents or Waivers Under our Loan Documents.” We have obtained waivers for these covenant violations and intend to repay a substantial portion of our outstanding indebtedness with a portion of the net proceeds from this offering; upon completion of this offering and the application of the net proceeds therefrom, we expect to be in compliance with all applicable debt covenants. However, if we do not complete this offering, we would need to access alternative capital resources to meet our cash requirements, and there is no assurance that we would be successful in doing so. An inability to refinance maturing indebtedness or obtain

alternative financing would have a material adverse affect on our business and financial condition.

 

Joint venture investments could be materially and adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and disputes between our co-venturers and us.

 

Our properties located in Lawrence, Kansas, Moscow, Idaho, San Angelo and Huntsville, Texas, Conway, Arkansas and Statesboro, Georgia, comprising approximately 22.5% of our beds, will be held in a joint venture with HSRE. Additionally, we anticipate that we will enter into other joint ventures in the future. We may not have a controlling interest in a joint venture and may share responsibility with our co-venturer for managing the property held by the joint venture. Under such circumstances, we may not have sole decision-making authority regarding the joint venture’s property. Investments in joint ventures, under certain circumstances, involve risks not present when we invest in a property without the involvement of a third party. For example, our co-venturer may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our preferences, policies or objectives. Additionally, it is possible that our co-venturer might become bankrupt, fail to fund its share of required capital contributions or block or delay decisions that we believe are necessary. Such investments may also have the potential risk of impasses on decisions, such as sales, because neither we nor our co-venturers may have full control over the joint venture. Disputes between us and our co-venturer may result in litigation or arbitration that would increase our expenses and divert the attention of our officers and directors from other aspects of our business. Consequently, actions by or disputes with our co-venturers might result in subjecting properties owned by the joint venture vehicle to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party co-venturers. Any of foregoing factors could materially and adversely affect our joint-venture investments.

 

Our management team has not previously operated a REIT, and this inexperience could materially and adversely affect us.

 

Our management team has not operated a business that has sought to qualify for taxation as a REIT or in compliance with the numerous technical restrictions and limitations set forth in the Internal Revenue Code applicable to REITs. In addition, managing a portfolio of assets under the REIT requirements of the Internal Revenue Code may limit the types of investments we are able to make or the activities that we may undertake. We may not be able to operate a REIT as profitably as a more experienced management team.

 

Our investment in properties subject to ground leases exposes us to the potential loss of such properties upon the expiration or termination of the ground leases, and the realization of such loss could materially and adversely affect us. Our properties at the University of South Alabama are also subject to a right of first refusal that may inhibit our ability to sell them.

 

Our properties located on the campus of the University of South Alabama are subject to ground leases with affiliates of the university. We have another property located in Moscow, Idaho which is also subject to a ground lease. In addition, we may invest in additional properties that are subject to ground leases. As the lessee under a ground lease, we are exposed to the possibility of losing our leasehold interest in the land on which our buildings are located. A ground lease may not be renewed upon the expiration of its current term or terminated by the lessor pursuant to the terms of the lease if we do not meet our obligations thereunder.

 

In the event of an uncured default under either of our existing ground leases, the lessor may terminate our leasehold interest in the land on which our buildings are located. Any termination

of our existing ground leases, unless in conjunction with the exercise of a purchase option, would also result in termination of our management agreement relating to the property. If we lose the leasehold interest in any of our properties, we could be materially and adversely affected.

 

Our properties located at the University of South Alabama are also subject to a right of first refusal pursuant to which the ground lessor entity related to the university has a right to purchase our leasehold interest in the relevant property in the event we decide to accept an offer to sell either property to a third party. This may inhibit our ability to sell these properties. Further, our right to transfer one of the on-campus properties is subject to the consent of the ground lessor, which consent may not be unreasonably withheld.

 

We may face risks associated with purchasing undeveloped land, and the occurrence of any of these risks could materially and adversely affect us.

 

We typically do not hold land for future development. We do, however, enter into purchase and sale agreements for undeveloped land from time to time in anticipation of obtaining construction financing and commencing development activities. A delay in obtaining construction financing may result in a delay in closing the acquisition of undeveloped land pursuant to a purchase and sale agreement. This may require us to pay to the seller of the land additional money in the form of an earnest money deposit, which may not be refundable or applicable against the purchase price.

 

It is possible that we will purchase property for development based on an erroneous estimate of the demand for student housing in the relevant market. This could result in us paying a purchase price for a property that ultimately proves to be in excess of such property’s value. As a result, we may acquire land for development at a cost that we may not be able to recover fully or on which we cannot build and develop a profitable student housing property. Real estate markets are highly uncertain and the value of such undeveloped land may fluctuate as a result of changing market conditions. Carrying costs can be significant and can result in losses or reduced margins. As a result, we may incur impairments on any land we acquire.

 

We may incur losses on interest rate swap and hedging arrangements, which could materially and adversely affect us.

 

We may in the future enter into agreements to reduce the risks associated with increases in interest rates. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to us if interest rates decline. If an arrangement is not indexed to the same rate as the indebtedness that is hedged, we may be exposed to losses to the extent the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other. Finally, nonperformance by the other party to the arrangement may subject us to increased credit risks. The occurrence of any of the foregoing could materially and adversely affect us.

 

Our inability to pass-through increases in taxes or other real estate costs to our student-tenants could materially and adversely affect our financial performance and liquidity.

 

We generally are not able to pass through to our student-tenants under existing leases increases in taxes, including real estate and income taxes, or other real estate related costs, such as insurance or maintenance. Consequently, unless we are able to off-set any such increases with sufficient revenues, our financial performance and liquidity may be materially and adversely affected by any such increases.

The prior performance of our predecessor entities may not be indicative of our future performance.

 

All of our properties have been acquired or developed by our predecessor entities within the past six years and have limited operating histories. Consequently, the historical operating results of our properties and the financial data set forth in this prospectus may not be indicative of our future performance. The operating performance of the properties may decline and we could be materially and adversely affected.

 

As a result of operating as a public company, we will incur significant increased costs and our management will be required to devote substantial time to new compliance requirements, which could materially and adversely affect us.

 

We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses, as well as expend significant management time, relating to various requirements applicable to public companies that were not applicable to our predecessor as a closely held private company. The Securities Exchange Act of 1934, as amended, or the “Exchange Act,” the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” and the New York Stock Exchange, or the “NYSE,” rules impose numerous requirements relating to a public company’s corporate governance and disclosure obligations. Compliance with these requirements will require us to hire additional employees, adopt new policies, procedures and controls, and cause us to incur significant costs. For example, we will be required to have specified board committees, adopt internal controls over financial reporting and disclosure controls and procedures, and file annual, quarterly and other reports and information with the SEC. If we identify any issues in complying with requirements applicable to public companies, we would likely incur additional costs remediating those issues and such costs could be significant, and the existence of those issues could materially and adversely affect us, our reputation or investor perception of us. It could also make it more difficult and expensive for us to obtain director and officer liability insurance, and we could be required to accept reduced policy limits and insurance coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it could become more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Any of the foregoing costs or factors could materially and adversely affect us.

 

We will be subject to the requirements of Section 302 and 404 of the Sarbanes-Oxley Act, which may be costly and challenging.

 

Our management will be required to deliver a report that assesses the effectiveness of our internal controls over financial reporting, pursuant to Section 302 of the Sarbanes-Oxley Act, as of December 31 subsequent to the year in which the registration statement of which this prospectus forms a part becomes effective. Internal controls are intended to allow management or employees in the normal course of performing their functions to prevent or detect misstatements on a timely basis. There is a deficiency in internal controls when their design or operation does not permit such prevention or detection. Section 404 of the Sarbanes-Oxley Act requires our independent registered public accounting firm to deliver an attestation report on the operating effectiveness of our internal controls over financial reporting in conjunction with their opinion on our audited financial statements as of the same date.

 

Substantial work on our part is required to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any deficiencies identified and test their operation. This process is expected to be both costly and challenging. Our Predecessor had not previously prepared consolidated financial statements. Additionally, the financial statements of some of the entities that are included in our Predecessor’s financial

statements were not individually audited. Consequently, it was necessary to consolidate numerous financial statements, some of which were unaudited, in anticipation of the audit of our Predecessor’s financial statements. In the course of such audit, it became necessary to prepare and record a number of adjustments to account balances that were identified as a result of the audit process itself. As a closely held private company our Predecessor has not been required to operate in compliance with the foregoing requirements of the Sarbanes-Oxley Act. We will be required to hire additional staff, and design and implement additional controls in order to comply with these requirements. We intend to bring our operations into compliance with Section 404 of the Sarbanes-Oxley Act within one year following the completion of this offering as required, and comply with the other mandates of the Sarbanes-Oxley Act, but there can be no assurance that such compliance will be achieved or maintained.

 

We cannot give any assurances that we will successfully remediate any material weaknesses identified in connection with our compliance with the provisions of Sections 302 and 404 of the Sarbanes-Oxley Act. The existence of any material weakness would preclude a conclusion by management and our registered independent public accounting firm that we maintained effective internal control over financial reporting. Our management may be required to devote significant time and incur significant expense to remediate any material weaknesses that may be discovered and may not be able to remediate any material weaknesses in a timely manner. The existence of a material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could lead to a decline in the trading price of our common stock.

 

Reporting of on-campus crime statistics required of colleges and universities may negatively impact our properties.

 

Federal and state laws require colleges and universities to publish and distribute reports of on-campus crime statistics, which may result in negative publicity and media coverage associated with crimes occurring in the vicinity of, or on the premises of, our on-campus properties. Reports of crime or other negative publicity regarding the safety of the students residing on, or near, our properties may have an adverse effect on both our on-campus and off-campus properties.

 

We may be subject to liabilities from litigation which could materially and adversely affect us.

 

We may become involved in legal proceedings, including consumer, employment, tort or commercial litigation that, if decided adversely to or settled by us and not adequately covered by insurance, could result in liabilities that could materially and adversely affect us.

 

Risks Related to the Real Estate Industry

 

Our performance and the value of our properties are subject to risks associated with real estate and with the real estate industry, which could materially and adversely affect us.

 

Our ability to make distributions to our stockholders depends on our ability to generate cash revenues in excess of our expenses, including expenses associated with our development activities, indebtedness and capital expenditure requirements. The occurrence of certain events and conditions that are generally applicable to owners and operators of real estate, many of which are beyond our control, could materially and adversely affect us. These events and conditions include:

 

 

 

In addition, periods of economic slowdown or recession, such as the one the global economy is currently experiencing, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in occupancy rates and rental revenue or an increased incidence of defaults under our existing leases, which could impair the value of our properties or reduce our cash flow.

 

Illiquidity of real estate investments could significantly impede our ability to sell our properties or otherwise respond to adverse changes in the performance of our properties, which could materially and adversely affect us.

 

From time to time, we may determine that it is in our best interest to sell one or more of our properties. However, because real estate investments are relatively illiquid, we may encounter difficulty in finding a buyer in a timely manner should we desire to sell one of our properties, especially if market conditions are poor at such time. Selling real estate has been difficult recently, since the availability of credit has become more limited, as lending standards have become more stringent. As a result, potential buyers have experienced difficulty in obtaining financing necessary to purchase a property. In addition, our properties are specifically designed for use as student housing, which could limit their marketability or affect their values for alternative uses. Consequently, should we desire to sell one or more of our properties, our ability to do so promptly or on terms that we deem to be acceptable may be limited, which could materially and adversely affect us.

 

We also may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct any such defects or to make any such improvements. In connection with any future property acquisitions, we may agree to provisions that materially restrict our ability to sell the property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be secured by or repaid with respect to such property.

 

In addition, in order to qualify for taxation as a REIT and to maintain such qualification, the Internal Revenue Code limits our ability to sell properties held for less than two years, which

may cause us to incur losses thereby reducing our cash flows. These factors and any others that would impede our ability to respond to adverse changes in the performance of any of our properties or a need for liquidity could materially and adversely affect us.

 

Finally, MXT Capital will enter into a tax protection agreement with us that significantly restricts our ability to sell our properties. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of any of our properties for the tax protection period in a transaction that would cause MXT Capital or its members to realize built-in gain to such properties at the time of their contribution to our Operating Partnership. All of our properties will have such built-in gain. If we sell one or more of our properties during the tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to it or its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments.

 

Increases in property taxes would increase our operating costs, which could materially and adversely affect our financial performance and liquidity.

 

Each of our properties will be subject to real and personal property taxes. These taxes may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. If property taxes increase, our operating costs will increase, and therefore our financial performance and liquidity could be materially and adversely affected.

 

We could incur significant costs related to government regulation and private litigation over environmental matters, which could materially and adversely affect us.

 

Under various environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA,” a current or previous owner or operator of real estate may be liable for contamination resulting from the release or threatened release of hazardous or toxic substances or petroleum at that property. Additionally, an entity that arranges for the disposal or treatment of a hazardous or toxic substance or petroleum at another property may be held jointly and severally liable for the cost of investigating and cleaning up such property or other affected property. Such parties are known as potentially responsible parties, or PRPs. These environmental laws often impose liability regardless of whether the PRP knew of, or was responsible for, the presence of the contaminants, and the costs of any required investigation or cleanup of these substances can be substantial. PRPs may also be liable to parties who have claims for contribution in connection with any such contamination, such as other PRPs or state and federal governmental agencies. The liability is generally not limited under such laws and therefore could easily exceed the property’s value and the assets of the liable party.

 

The presence of contamination, hazardous materials or environmental issues, or the failure to remediate such conditions, at a property may expose us to third-party liability for personal injury or property damage, remediation costs or adversely affect our ability to sell, lease or develop the property or to borrow using the property as collateral, which could materially and adversely affect us.

 

Environmental laws also impose ongoing compliance requirements on owners and operators of real estate. Environmental laws potentially affecting us address a wide variety of matters, including, but not limited to, asbestos-containing building materials, or “ACBMs,” storage tanks, storm water and wastewater discharges, lead-based paint, radon, wetlands and hazardous wastes. Failure to comply with these laws could result in fines and penalties or expose us to third-party liability, which could materially and adversely affect us. Some of our properties may have conditions that are subject to these requirements and we could be liable for such fines or

penalties or liable to third parties, as described below in “Business and Properties—Regulation—Environmental Matters.”

 

The conditions at some of our properties may expose us to liability and remediation costs related to environmental matters, which could materially and adversely affect us.

 

Certain of our properties may contain, or may have contained, ACBMs. Environmental laws require that ACBMs be properly managed and maintained, and may impose fines and penalties on building owners and operators for failure to comply with these requirements. Also, some of our properties may contain, or may have contained, or are adjacent to or near other properties that may contain or may have contained storage tanks for the storage of petroleum products or other hazardous or toxic substances. Any of these conditions create the potential for the release of these contaminants. Third parties may be permitted by law to seek recovery from owners or operators for personal injury associated with exposure to these or other contaminants. Furthermore, some of our properties include regulated wetlands on undeveloped portions of such properties and mitigated wetlands on or near our properties, the existence of which can delay or impede development or require costs to be incurred to mitigate the impact of any disturbance. Absent appropriate permits, we can be held responsible for restoring wetlands and be required to pay fines and penalties, which could materially and adversely affect us.

 

Over the past several years there have been an increasing number of lawsuits against owners and operators of properties alleging personal injury and property damage caused by the presence of mold in real estate. Mold growth can occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Concern about indoor exposure to mold has been increasing as some molds have been shown to produce airborne toxins and irritants and exposure to these and other types of molds may lead to adverse health effects and symptoms, including allergic or other reactions. Some of our properties may contain microbial matter such as mold and mildew. The presence of significant mold at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property and could expose us to liability from student-tenants, employees and others if property damage or health concerns arise, which could materially and adversely affect us.

 

If any of our properties are not properly connected to a water or sewer system, or if the integrity of such systems are breached, microbial matter or other contamination can develop. If this were to occur, we could incur significant remedial costs and we could also be subject to private damage claims and awards, which could be material. If we become subject to claims in this regard, it could materially and adversely affect us and our insurability for such matters in the future.

 

Independent environmental consultants have conducted Phase I environmental site assessments on all of our properties. These Phase I environmental site assessments are intended to evaluate information regarding the environmental condition of the surveyed property and surrounding properties based generally on visual observations, interviews and the review of publicly available information. These assessments do not typically take into account all environmental issues including, but not limited to, testing of soil or groundwater, a comprehensive asbestos survey or an invasive inspection for the presence of lead-based paint, radon or mold contamination. As a result, these assessments may have failed to reveal all environmental conditions, liabilities, or other compliance issues affecting our properties. Material environmental conditions, liabilities, or compliance issues may have arisen after the assessments were conducted or may arise in the future.

In addition, future laws, ordinances or regulations may impose material additional environmental liabilities. We cannot assure you that the cost of future environmental compliance or remedial measures will not affect our ability to make distributions to our stockholders or that such costs or other remedial measures will not be material to us.

 

In the event we decided to sell one of our properties, the presence of hazardous substances on such property may limit our ability to sell it on favorable terms or at all, and we may incur substantial remediation costs.

 

The discovery of material environmental liabilities at one or more of our properties could subject us to unanticipated significant costs, which could materially and adversely affect us.

 

We may incur significant costs complying with the Americans with Disabilities Act, the Fair Housing Amendments Act and similar laws, which could materially and adversely affect us.

 

Under the Americans with Disabilities Act of 1990, or the “ADA,” all public accommodations must meet various federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements may require modifications to our properties, such as the removal of access barriers or restrict our ability to renovate or develop our properties in the manner we desire. In addition, in June 2008, the Department of Justice proposed a substantial number of changes to the accessibility guidelines under the ADA. In January of 2009, President Obama suspended final publication and implementation of these regulations, pending comprehensive review by his administration. If implemented as proposed, the new guidelines could cause some of our properties to incur costly measures to become fully compliant.

 

Additional federal, state and local laws may also require us to make similar modifications or impose similar restrictions on us. For example, the Fair Housing Amendments Act of 1988, or “FHAA,” requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped.

 

We have not conducted an audit or investigation of all of our properties to determine our compliance with present requirements of the ADA, FHAA or any similar laws. Noncompliance with any of these laws could result in us incurring significant costs to make substantial modifications to our properties or in the imposition of fines or an award or damages to private litigants. We cannot predict the ultimate amount of the cost of compliance with the ADA, FHAA or other legislation. If we incur substantial costs to comply with the ADA, FHAA or any other legislation, we could be materially and adversely affected.

 

We may incur significant costs complying with other regulatory requirements, which could materially and adversely affect us.

 

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we might incur governmental fines or private damage awards. Furthermore, existing requirements could change and require us to make significant unanticipated expenditures, which could materially and adversely affect us.

 

Uninsured losses or losses in excess of insured limits could materially and adversely affect us.

 

We carry comprehensive liability, fire, extended coverage, terrorism and rental loss insurance covering all of our properties. Our insurance includes coverage for earthquake damage to properties located in seismically active areas, windstorm damage to properties exposed to hurricanes, and terrorism insurance on all of our properties. In each case, we believe the coverage

limits and applicable deductibles are commercially reasonable. All insurance policies are subject to coverage extensions that are typical for our business. We do not carry insurance for generally uninsured losses such as loss from riots or acts of God.

 

In the event we experience a loss which is uninsured or which exceeds our policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from such property. In addition, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a property after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive might be inadequate to restore our economic position with respect to the damaged or destroyed property. Furthermore, in the event of a substantial loss at one or more of our properties that is covered by one or more policies, the remaining insurance under these policies, if any, could be insufficient to adequately insure our other properties. In such event, securing additional insurance policies, if possible, could be significantly more expensive than our current policies. Any loss of these types may materially and adversely affect us.

 

Future terrorist attacks in the U.S. could reduce the demand for, and the value of, our properties, which could materially and adversely affect us.

 

Future terrorist attacks in the U.S., such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and acts of war, or threats of the same, could reduce the demand for, and the value of, our properties. Any such event in any of the markets in which our properties are located would make it difficult for us to maintain the affected property’s occupancy or to re-lease the property at rates equal to or above historical rates, which could materially and adversely affect us.

 

In addition, terrorist attacks could directly impact the value of our properties through damage, destruction, loss, or increased security costs, and the availability of insurance for such acts may be limited or prohibitively expensive. If we receive casualty proceeds, we may not be able to reinvest such proceeds profitably or at all, and we may be forced to recognize taxable gain on the affected property, which could materially and adversely affect us.

 

Risks Related to Our Company and Structure

 

Provisions of our charter allow our board of directors to authorize the issuance of additional securities, which may limit the ability of a third party to acquire control of us through a transaction that our stockholders believe to be in their best interest.

 

Upon completion of this offering, our charter will authorize our board of directors to issue up to 90,000,000 shares of common stock and up to 10,000,000 shares of preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue and to classify or reclassify any unissued common stock or preferred stock and to set the preferences, rights and other terms of the classified or reclassified stock. As a result, our board of directors may authorize the issuance of additional stock or establish a series of common or preferred stock that may have the effect of delaying, deferring or preventing a change in control of our company, including through a transaction at a premium over the market price of our common stock, even if our stockholders believe that a change in control through such a transaction is in their best interest.

Provisions of Maryland law may limit the ability of a third party to acquire control of us, which, in turn, may negatively affect our stockholders’ ability to realize a premium over the market price of our common stock.

 

Certain provisions of the Maryland General Corporation Law, or the “MGCL,” may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the market price of our common stock, including:

 

 

By resolution of our board of directors, we have opted out of the business combination provisions of the MGCL and provided that any business combination between us and any other person is exempt from the business combination provisions of the MGCL, provided that the business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such persons). Pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, our board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.

 

Additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which we do not yet have. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us that otherwise could provide our stockholders with the opportunity to realize a premium over the market price of our common stock.

 

The ownership limitations in our charter may restrict or prevent you from engaging in certain transfers of our common stock, which may delay or prevent a change in control of us that our stockholders believe to be in their best interest.

 

In order for us to qualify as a REIT for each taxable year after 2010, no more than 50% in value of the outstanding shares of our common stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal income tax laws to include various kinds of entities) during the last half of any taxable year. Attribution rules in the Internal Revenue Code determine if any individual or entity actually or constructively owns our common stock under this requirement. Additionally, at least 100 persons must beneficially own shares of our common stock during at least 335 days of a taxable year for each taxable year after 2010. To assist us in

qualifying as a REIT, our charter contains a stock ownership limit which provides that, subject to certain exceptions, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate. Generally, any of our shares of common stock owned by affiliated owners will be added together for purposes of the stock ownership limit.

 

If anyone transfers shares of our stock in a way that would violate the stock ownership limit or prevent us from qualifying as a REIT under the federal income tax laws, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the stock ownership limit or we will consider the transfer to be null and void from the outset, and the intended transferee of those shares will be deemed never to have owned the shares. Anyone who acquires shares of our common stock in violation of the stock ownership limit or the other restrictions on transfer in our charter bears the risk of suffering a financial loss when the shares are redeemed or sold if their market price falls between the date of purchase and the date of redemption or sale.

 

The constructive ownership rules under the Internal Revenue Code are complex and may cause stock owned actually or constructively by a group of related individuals or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our stock (or the acquisition of an interest in an entity that owns, actually or constructively, our stock) by an individual or entity, could, nevertheless cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% of our outstanding stock and therefore they would be subject to the stock ownership limit. Our charter, however, allows exceptions to be made to this limitation if our board of directors determines that such exceptions will not jeopardize our tax status as a REIT.

 

In addition, the stock ownership limit and the other restrictions on transfer in our charter may have the effect of delaying, deferring or preventing a third party from acquiring control of us, whether such a transaction involved a premium price for our common stock or otherwise was in the best interest of our stockholders.

 

Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit the recourse available in the event actions are taken that are not in the best interest of our stockholders.

 

Maryland law provides that a director has no liability in connection with the director’s management of the business and affairs of a corporation if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter exculpates our directors and officers from liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our charter authorizes us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each director or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to fund the defense costs incurred by our directors and officers. As a result, we and our stockholders may have more limited rights against our directors and officers, which could limit the recourse available in the event actions are taken that are not in our stockholders’ best interest.

Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management that our stockholders believe to be in their best interest.

 

Our charter provides that a director may be removed only for cause (as defined in our charter) and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors. Our charter also provides that vacancies on our board of directors may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements prevent stockholders from removing directors except for cause and with a substantial affirmative vote and from replacing directors with their own nominees. As a result, a change in the management of our company that our stockholders believe is in their best interest may be delayed, deferred or prevented.

 

Our board of directors has approved very broad investment guidelines for us and will not review or approve each investment decision made by our management team.

 

Our management team is authorized to follow broad investment guidelines and, therefore, has great latitude in determining which are the proper investments for us, as well as the individual investment decisions. Our management team may make investments with lower rates of return than those anticipated under current market conditions and/or may make investments with greater risks to achieve those anticipated returns.

 

The ability of our board of directors to change some of our policies without the consent of our stockholders may lead to the adoption of policies that are not in the best interest of our stockholders.

 

Our major policies, including our policies with respect to investments, leverage, financing, growth, debt and capitalization, will be determined by our board of directors or those committees or officers to whom our board of directors may delegate such authority. Our board of directors will also establish the amount of any dividends or distributions that we may pay to our stockholders. Our board of directors or the committees or officers to which such decisions may be delegated will have the ability to amend or revise these and our other policies at any time without stockholder vote. Accordingly, our stockholders may not have control over changes in our policies, and we may adopt policies that may not prove to be in the best interests of our stockholders.

 

As a result of our formation transactions, which were not negotiated on an arm’s length basis, our existing investors will receive substantial economic benefits from this offering.

 

MXT Capital will receive           OP units for the contribution of its interests in the predecessor entities and its student housing business and $4.5 million of the net proceeds from this offering will be used for the repayment of certain indebtedness. Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, by virtue of their indirect ownership in MXT Capital, and therefore the various entities that own interests in the predecessor entities, will be entitled to receive a significant portion of the benefits of this offering received by MXT Capital. MXT Capital, through Campus Crest Group, and the Ricker Group were the principal prior owners of our predecessor entities and MXT Capital played a significant role in structuring our formation. In the course of structuring our formation, MXT Capital had the ability to influence the type and level of benefits that it and our executive officers would receive from us. It also had the ability to influence the other terms of our formation transactions, including, without limitation, the representations and warranties that it made to us in our formation transactions and the indemnities that it provided to us for breaches of such representations and warranties. In addition, as a result of this offering and

the application of the net proceeds therefrom, Mr. Rollins and Mr. Hartnett will be released from certain personal guarantees with respect to mortgage and construction indebtedness with aggregate principal amounts of $      million and $      million, respectively, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness, as described below. MXT Capital will also receive Campus Crest Group’s interests in two parcels of land consisting of 20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties. In addition, we will enter into a registration rights agreement with MXT Capital pursuant to which we will agree, among other things, to register the resale of any common stock that may be exchanged for the OP units issued in our formation transactions.

 

The Ricker Group will receive approximately $26.7 million from the net proceeds from this offering and 266,667 OP units for the contribution of its interests in the predecessor entities and its interest in the entities that own fee interests in certain properties that were subject to ground leases such that our operating partnership will have, following the completion of this offering and our formation transactions, fee simple title to the real estate that is the subject of the leases. Following this transfer, none of the predecessor entities other than Campus Crest at Mobile, LLC and Campus Crest at Mobile Phase II, LLC (which own The Grove at Mobile in Mobile, AL) and Campus Crest at Moscow, LLC (which owns The Grove at Moscow in Moscow, ID) shall be subject to any ground lease. In addition, as a result of this offering and the use of the net proceeds therefrom, Mr. Ricker will be released from certain personal guarantees with respect to mortgage and construction indebtedness in the aggregate amount of $      million, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness described below.

 

Certain third-party investors will receive in aggregate approximately $10.7 million from the net proceeds from this offering and approximately 53,000 OP units for the contribution of their interests in the predecessor entities.

 

We will use approximately $4.0 million of the net proceeds from this offering to repay our indebtedness to Capital Bank, an entity in which the Ricker Group has an ownership interest and of which Carl H. Ricker, Jr. is a director.

 

We will use approximately $6.0 million of the net proceeds from this offering to repay indebtedness owed by us to RHR, LLC, an entity owned by MXT Capital and the Ricker Group. RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us.

 

Since we did not conduct arm’s length negotiations with our existing investors with respect to the terms of our formation transactions, the terms of the agreements we reached with these investors may not be as favorable to us as if they were so negotiated.

 

Members of our management and board of directors will be holders of OP units, and their interests may differ from those of our stockholders.

 

After the consummation of this offering, members of our management and board of directors will also be direct or indirect holders of OP units. As holders of OP units, they may have conflicting interests with our stockholders. For example, they may have different tax positions from our stockholders, which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new indebtedness or refinance existing indebtedness and how to structure future transactions. As a result, our management and board of directors may implement policies or make decisions that are not in the best interest of our stockholders.

Members of our management will be beneficiaries of a tax protection agreement that will significantly restrict our ability to sell our properties and may require us to maintain indebtedness that we otherwise would not.

 

MXT Capital will enter into a tax protection agreement with us. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of any of our properties during the tax protection period in a transaction that would cause MXT Capital or its members to realize built-in gain. All of our properties will have such built-in gain. If we sell one or more of our properties during the tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to it or its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments. Consequently, our ability to sell or dispose of our properties will be substantially restricted by this obligation to make payments to MXT Capital during the tax protection period if we sell a property.

 

The tax protection agreement will also require us to maintain a minimum level of indebtedness of $      throughout the tax protection period in order to allow a sufficient amount of debt to be allocable to MXT Capital and its members to avoid certain adverse tax consequences. If we fail to maintain such minimum indebtedness throughout the tax protection period, and as a consequence MXT Capital or its members incur federal, state or local tax liabilities, we will be required to make indemnifying payments to them, computed in the manner described in the preceding paragraph.

 

We will enter into employment agreements with certain of our executive officers that will require us to make payments in the event such officer’s employment is terminated by us without cause or by such officer for good reason. This may make it difficult for us to effect changes to our management or limit the ability of a third party to acquire control of us that would otherwise be in the best interest of our stockholders.

 

The employment agreements that we will enter into with certain of our executive officers upon completion of this offering provide benefits under certain circumstances that could make it more difficult for us to terminate these officers. Therefore, even if we sought to replace these officers, it may not be economically viable for us to do so. Furthermore, because an acquiring company would likely seek to replace these officers with their own personnel, these employment agreements could have the effect of delaying, deterring or preventing a change in control of our company that would otherwise be in the best interest of our stockholders.

 

After the consummation of this offering and our formation transactions, our primary assets will be our general partner interest in our operating partnership and OP units and, as a result, we will depend on distributions from our operating partnership to pay dividends and expenses.

 

After the consummation of this offering and our formation transactions, we will be a holding company and will have no material assets other than our general partner interest and OP units. We intend to cause our operating partnership to make distributions to its limited partners, including us, in an amount sufficient to allow us to qualify as a REIT for federal income tax purposes and to pay all our expenses. To the extent we need funds and our operating partnership is restricted from making distributions under applicable law, agreement or otherwise, or if our operating partnership is otherwise unable to provide such funds, the failure to make such distributions could adversely affect our liquidity and financial condition and our ability to make distributions to our stockholders.

We operate through a partnership structure, which could materially and adversely affect us.

 

Our primary property-owning vehicle is our operating partnership, of which we are the sole general partner. Our acquisition of properties through our operating partnership in exchange, in part, for OP units may permit certain tax deferral advantages to the sellers of those properties. Since the properties contributed to our operating partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause material and adverse tax consequences to the limited partners who contributed such properties. Although we, as the sole general partner of our operating partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, we have agreed to indemnify MXT Capital for certain tax consequences related to our properties and there can be no assurance that our operating partnership will not acquire properties in the future subject to material restrictions designed to minimize the adverse tax consequences to the limited partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage our properties, which could materially and adversely affect us.

 

We have fiduciary duties as sole general partner of our operating partnership which may result in conflicts of interest in representing your interests as stockholders of our company.

 

After the consummation of this offering, conflicts of interest could arise in the future as a result of the relationship between us, on the one hand, and our operating partnership or any partner thereof, on the other. We, as the sole general partner of our operating partnership, will have fiduciary duties to the other limited partners in our operating partnership under Delaware law. At the same time, our directors and officers have duties to us and our stockholders under applicable Maryland law in connection with their management of us. Our duties as the sole general partner of our operating partnership may come in conflict with the duties of our directors and officers to us and our stockholders. For example, those persons holding OP units will have the right to vote on certain amendments to the partnership agreement (which require approval by a majority in interest of the limited partners, including us) and individually to approve certain amendments that would adversely affect their rights. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. We are unable to modify the rights of limited partners to receive distributions as set forth in the partnership agreement in a manner that adversely affects their rights without their consent, even though such modification might be in the best interest of our stockholders. Our partnership agreement will provide that if there is a conflict between the interests of our stockholders, on one hand, and the interests of the limited partners, on the other, we will endeavor in good faith to resolve the conflict in a manner not adverse to either our stockholders or the limited partners; provided, however, that for so long as we own a controlling interest in our operating partnership, we have agreed to resolve any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners in favor of our stockholders.

 

Changes in accounting rules, assumptions and/or judgments could materially and adversely affect us.

 

Accounting rules and interpretations for certain aspects of our operations are highly complex and involve significant assumptions and judgment. These complexities could lead to a delay in the preparation and public dissemination of our financial statements. Furthermore, changes in accounting rules and interpretations or in our accounting assumptions and/or judgments, such as asset impairments, could significantly impact our financial statements. Under any of these circumstances, we could be materially and adversely affected.

Risks Related to this Offering

 

We may not be able to make an initial distribution or maintain any initial, or any subsequent, distribution rate.

 

Our ability to fund any distributions out of operating cash flow will depend, in part, upon the receipt of cash flow from our properties. If we need to fund future distributions from working capital, or if we reduce our distribution rate, our stock price may be adversely affected. To the extent that we fund any distributions from working capital, our cash available for investment in our business, including for property development and acquisition purposes, will decrease.

 

Any distributions in excess of our current and accumulated earnings and profits will not be taxable to a holder to the extent that they do not exceed the adjusted basis of the holder’s shares in respect of which the distributions were made, but rather, will reduce the adjusted basis of these shares. To the extent that such distributions exceed the adjusted basis of a stockholder’s shares, they will generally be included in income as capital gains. For a more complete discussion of the tax treatment of distributions to our stockholders, see “Federal Income Tax Considerations.”

 

A public market for our common stock may never develop and your ability to sell your shares of our common stock may be limited.

 

Prior to this offering, there has been no public market for our common stock. We intend to apply to have our common stock listed on the NYSE under the symbol ‘‘          ”. However, an active trading market for our common stock may never develop or, even if one does develop, may not be sustained. In the absence of an active trading market, an investor may be unable to liquidate an investment in shares of our common stock at a favorable price or at all. The initial public offering price has been determined by us and the representative of the underwriters. We cannot assure you that the price at which the common stock will sell in the public market after the closing of this offering will not be lower than the price at which they are sold by the underwriters.

 

Common stock eligible for future sale may adversely affect the market price of our common stock.

 

We cannot predict the effect, if any, of future issuances of shares of our common stock or the availability of shares of our common stock for future sale on the market price of our common stock. Any sales of a substantial number of shares of our common stock in the public market (including shares issued to our directors and officers), or the perception that such sales might occur, may cause the market price of our common stock to decline.

 

We, each of our directors and executive officers, MXT Capital and Carl H. Ricker, Jr. have agreed, with limited exceptions, that we and they will not, without the prior written consent of the representative of the underwriters, for a period of one year after the date of this prospectus (subject to extension under certain circumstances), among other things, directly or indirectly, offer to sell, sell or otherwise dispose of any shares of our common stock or securities that are convertible into or exchangeable for shares of common stock or file a registration statement with the SEC relating to the offering of any shares of our common stock or such convertible or exchangeable securities. In addition, we have agreed with the underwriters that we will not, during the same period of time, issue any shares of our common stock in exchange for any OP units. However, the representative may, at any time, release all or any portion of the shares of common stock subject to the foregoing lock-up provisions. If these restrictions are waived, the

affected shares of common stock may be available for sale into the market which could reduce the market price of our common stock.

 

Under our 2010 Incentive Award Plan, we have the ability to issue options, stock appreciation rights, restricted stock and restricted stock units, performance shares, performance units, dividend equivalents and other stock-based awards to our executive officers, employees and non-employee directors. In connection with this offering, we intend to file a registration statement on Form S-8 to register all shares of common stock reserved for issuance under our 2010 Incentive Award Plan, and once we register these shares, they can be freely sold in the public market after issuance, subject to the terms of the plan and the lock-up provisions discussed above. MXT Capital will enter into a registration rights agreement with us. Pursuant to that agreement, we will agree, among other things, to register the resale of any common stock that may be exchanged for the OP units issued in our formation transactions. This agreement requires us to seek to register all common stock that may be exchanged for OP units effective as of that date which is 12 months following completion of this offering on a shelf registration statement under the Securities Act. We also may issue from time to time common stock or cause our operating partnership to issue OP units in connection with the acquisition of properties and we may grant demand or piggyback registration rights in connection with these issuances. Registration of the sales of these shares of our common stock would facilitate their sale into the public market. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may have the effect of reducing the market price of our common stock and impeding our ability to raise future capital. In addition, any future sales of shares of our common stock may dilute the value of our common stock.

 

The market price of our common stock may be volatile due to numerous circumstances, some of which are beyond our control.

 

Even if an active trading market develops for our common stock, the market price of our common stock may be highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the market price of our common stock. Some of the factors that could negatively affect the market price or result in fluctuations in the market price of our common stock include:

 

 

 

Market interest rates may adversely affect the market price of our common stock.

 

One of the factors that investors may consider in deciding whether to buy or sell our common stock will be the dividend yield on our common stock as a percentage of our stock price, relative to market interest rates. An increase in market interest rates may lead prospective purchasers of our common stock to expect a higher dividend yield in order to maintain their investment, and higher interest rates would likely increase our borrowing costs which would reduce our cash flow, cash available to service our indebtedness or invest in our business and adversely affect our ability to make distributions to our stockholders. As a result, higher market interest rates could adversely affect the market price of our common stock.

 

Future offerings of debt or equity securities ranking senior to our common stock may limit our operating and financial flexibility and may adversely affect the market price of our common stock.

 

If we decide to issue debt or equity securities in the future ranking senior to our common stock or otherwise incur indebtedness, it is possible that these securities or indebtedness will be governed by an indenture or other instrument containing covenants restricting our operating flexibility and limiting our ability to make distributions to our stockholders. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges, including with respect to distributions, more favorable than those of our common stock and may result in dilution to owners of our common stock. Because our decision to issue debt or equity securities in any future offering or otherwise incur indebtedness will depend on then current market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or financings, any of which could adversely affect the market price, and dilute the value of, our common stock.

 

We have not obtained appraisals of our properties in connection with this offering and the price we pay to our existing investors for their interests in our predecessor entities may exceed our properties’ market value.

 

We have not obtained appraisals of our properties in connection with this offering. The consideration we have agreed to pay to our existing investors for their interests in our predecessor entities is based upon the valuation of our business as a going concern. As a result, this consideration may exceed our properties’ individual market values.

 

The initial public offering price of our common stock was determined in consultation with the representative of the underwriters and does not necessarily bear any relationship to the book value or the market value of our properties. Factors considered in determining the initial public offering price included the valuation multiples of publicly traded companies that the representative of the underwriters believes to be comparable to us, our financial information, the history of,

and the prospects for, our company and the industry in which we compete, an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues, the present state of our development, and the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. As a result, our value, as represented by the initial public offering price of our common stock, may exceed the market value of our individual properties.

 

Purchasers of our common stock in this offering will experience immediate and substantial dilution.

 

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. As of December 31, 2009, the aggregate historical combined net tangible book value of the interests and assets to be transferred to our operating partnership was approximately $      million, or $      per share of our common stock on a fully-diluted basis. The pro forma net tangible book value per share of our common stock after the consummation of this offering and our formation transactions will be less than the initial public offering price. You will therefore experience immediate dilution of $      per share immediately after this offering.

 

Federal Income Tax Risk Factors

 

Our failure to qualify or remain qualified as a REIT could have a material and adverse effect on us and the market price of our common stock.

 

We intend to operate in a manner that will allow us to qualify as a REIT for U.S. federal income tax purposes under the Internal Revenue Code. We have not requested and do not plan to request a ruling from the Internal Revenue Service, or IRS, that we qualify as a REIT, and the statements in this prospectus are not binding on the IRS or any court. If we fail to qualify or lose our qualification as a REIT, we will face serious tax consequences that would substantially reduce the funds available for distribution to our stockholders for each of the years involved because:

 

 

In addition, if we lose our qualification as a REIT, we will not be required to make distributions to stockholders, and all distributions to our stockholders will be subject to tax as regular corporate dividends to the extent of our current and accumulated earnings and profits. This means that our U.S. individual stockholders would be taxed on our dividends at a maximum U.S. federal income tax rate currently at 15%, and our corporate stockholders generally would be entitled to the dividends received deduction with respect to such dividends, subject, in each case, to applicable limitations under the Internal Revenue Code.

 

Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions and regulations promulgated thereunder for which there are only limited judicial and administrative interpretations. Even a technical or inadvertent violation could jeopardize our ability to qualify as a REIT. The complexity of these provisions and of the applicable U.S. Treasury

Department regulations, or “Treasury Regulations,” that have been promulgated under the Internal Revenue Code is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements on a continuing basis, including requirements regarding the composition of our assets, sources of our gross income and stockholder ownership. Also, we must make distributions to stockholders aggregating annually at least 90% of our net taxable income, excluding net capital gains.

 

As a result of these factors, our failure to qualify as a REIT could materially and adversely affect us and the market price of our common stock.

 

To qualify and remain qualified as a REIT, we will likely rely on the availability of equity and debt capital to fund our business.

 

To qualify and remain qualified as a REIT, we generally must distribute to our stockholders at least 90% of our net taxable income each year, excluding net capital gains, and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our net taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Because of REIT distribution requirements, we may be unable to fund capital expenditures, such as our developments, future acquisitions or property upgrades or renovations from operating cash flow. Therefore, we may be dependent on the public equity and debt capital markets and private lenders to fund our growth and other capital expenditures. However, we may not be able to obtain this capital on favorable terms or at all. Our access to third-party sources of capital depends, in part, on:

 

 

If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations or make the cash distributions to our stockholders, including those necessary to qualify or maintain our qualification as a REIT, which could materially and adversely affect us.

 

Even if we qualify as a REIT, we may face other tax liabilities that have a material and adverse affect on our financial performance and liquidity.

 

Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. Any of these taxes would cause our operating costs to increase, and therefore our financial performance and liquidity could be materially and adversely affected.

 

In particular, various services provided at our properties are not permitted to be provided directly by our Operating Partnership, but must be provided through “taxable REIT subsidiaries”

that are treated as fully taxable corporations. Although we do not anticipate this to be the case, it is possible that the income that is derived by, and subject to corporate income tax in the hands of, such taxable REIT subsidiaries may be significant.

 

To qualify or remain qualified as a REIT, we may be forced to limit the activities of our taxable REIT subsidiaries, which could materially and adversely affect us.

 

To qualify or remain qualified as a REIT, no more than 25% of the value of our total assets may consist of the securities of one or more taxable REIT subsidiaries, or “TRS.” Certain of our activities, such as our third-party development, construction, management and leasing services, must be conducted through our TRSs for us to qualify or remain qualified as a REIT. In addition, certain non-customary services must be provided by a TRS or an independent contractor. If the revenues from such activities create a risk that the value of our TRSs, based on revenues or otherwise, approaches the 25% threshold, we will be forced to curtail such activities or take other steps to remain under the 25% threshold. Since the 25% threshold is based on value, it is possible that the IRS could successfully contend that the value of our TRSs exceeds the 25% threshold even if our TRSs account for less than 25% of our consolidated revenues, income or cash flow. After our formation transactions, our third-party services will be performed by our TRSs. Consequently, income earned from our third-party services and non-customary services will be subject to regular federal income taxation and state and local income taxation where applicable, thus reducing the amount of cash available for distribution to our stockholders.

 

A TRS is not permitted to directly or indirectly operate or manage a “hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis.” We have been advised by counsel that the proposed method of operating our TRSs will not be considered to constitute such an activity. Future Treasury Regulations or other guidance interpreting the applicable provisions might adopt a different approach, or the IRS might disagree with the conclusion of our counsel. In such event we might be forced to change our method of operating our TRSs, or one or more of the TRSs could fail to qualify as a TRS, which could cause us to fail to qualify as a REIT. Any of the foregoing circumstances could materially and adversely affect us.

 

If our operating partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and we could be materially and adversely affected.

 

We believe that our operating partnership will qualify to be treated as a partnership for federal income tax purposes. As a partnership, our operating partnership will not be subject to federal income tax on its income. Instead, each of its partners, including us, will be required to pay tax on its allocable share of our operating partnership’s income. No assurance can be provided, however, that the IRS, will not challenge its status as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership as a corporation for tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of the our operating partnership to qualify as a partnership would cause it to become subject to federal state and corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.

 

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends, which could materially and adversely affect the market price of our common stock.

 

The maximum tax rate applicable to income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates has been reduced by legislation to 15% (through

the end of 2010). Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the market price of the stock of REITs, including shares of our common stock.

 

We may in the future choose to pay dividends in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive.

 

We may in the future distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder. Under Revenue Procedure 2010-12 (which extends guidance previously issued by the IRS in Revenue Procedure 2009-15), up to 90% of any such taxable dividend through 2011 could be payable in our stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.

 

Further, while Revenue Procedure 2010-12 applies only to taxable dividends payable in cash or stock through 2011, it is unclear whether and to what extent we will be able to pay taxable dividends in cash and stock in later years. Moreover, various aspects of such a taxable cash/stock dividend are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable cash/stock dividends, including on a retroactive basis, or assert that the requirements for such taxable cash/stock dividends have not been met.

 

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities, which could materially and adversely affect our financial performance and liquidity.

 

The REIT provisions of the Internal Revenue Code substantially limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets generally does not constitute “gross income” for purposes of the 75% gross income test or the 95% gross income test, if certain requirements are met. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result, we might have to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because a domestic TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except for being carried forward against future taxable income in the respective TRS. These increased costs could materially and adversely affect our financial performance and liquidity.

Complying with REIT requirements may cause us to forgo otherwise attractive investment opportunities, which could materially and adversely affect us.

 

To qualify as a REIT for U.S. federal income tax purposes, we continually must satisfy tests concerning, among other things, the sources of our income, the type and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income, asset-diversification or distribution requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments, which could materially and adversely affect us.

 

The ability of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.

 

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interests to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.

 

New legislation, regulation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT.

 

The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, regulation, administrative or judicial action at any time, which could affect the U.S. federal income tax treatment of an investment in our common stock. The U.S. federal income tax rules that affect REITs are under constant review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. Revisions in U.S. federal tax laws and interpretations thereof could cause us to change our investments and commitments, which could also affect the tax considerations of an investment in our common stock.

 

This prospectus contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in, or implied by, the forward-looking statements. Factors that could materially and adversely affect our business, financial condition, cash flows, liquidity, results of operations, FFO and prospects include, but are not limited to:

 

 

 

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this prospectus. The matters summarized under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business and Properties” and elsewhere in this prospectus could cause our actual results and performance to differ materially from those set forth in, or implied by, our forward-looking statements. Accordingly, we cannot guarantee future results or performance. Furthermore, except as required by law, we are under no duty to, and we do not intend to, update any of our forward-looking statements after the date of this prospectus, whether as a result of new information, future events or otherwise.

 

Assuming an initial public offering price of $      per share of common stock based upon the mid-point of the price range set forth on the cover page of this prospectus, we estimate we will receive gross proceeds from this offering of $      and approximately $      if the underwriters’ overallotment option is exercised in full. After deducting the underwriting discount and other estimated expenses of this offering payable by us, we expect net proceeds from this offering of approximately $      and approximately $      if the underwriters’ overallotment option is exercised in full.

 

We will contribute the net proceeds from this offering to our operating partnership. Assuming no exercise of the underwriters’ overallotment option, we intend to use the net proceeds from this offering as follows:

 

 

 

If the underwriters’ overallotment option is exercised, we expect to use the additional net proceeds (which, if the underwriters’ overallotment is exercised in full, will be approximately $      (based upon the mid-point of the price range set forth on the cover page of this prospectus)) for working capital and general corporate purposes.

 

Pending application of any portion of the net proceeds from this offering, we will invest it in interest-bearing accounts and short-term, interest-bearing securities as is consistent with our intention to qualify for taxation as a REIT for federal income tax purposes. Such investments may include, for example, obligations of the U.S. federal government and governmental agency securities, certificates of deposit and interest-bearing bank deposits.

 

The following table provides information related to the expected sources and uses of the proceeds from this offering, assuming the underwriters’ overallotment option is not exercised.

 

 

 

To qualify as a REIT so that U.S. federal income tax generally does not apply to our earnings to the extent distributed to stockholders, we must, in addition to meeting other requirements, annually distribute to our stockholders an amount at least equal to (i) 90% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gain), plus (ii) 90% of the excess of our net income from foreclosure property (as defined in the Internal Revenue Code) over the tax imposed on such income by the Internal Revenue Code, less (iii) any “excess non-cash income” (as determined under the Internal Revenue Code). We are subject to income tax on income that is not distributed to our stockholders and to an excise tax to the extent that certain percentages of our income are not distributed to our stockholders by specified dates.

 

To the extent that, in respect of any calendar year, cash available for distribution to our stockholders is less than our REIT taxable income, we could be required to sell assets or borrow funds to make cash distributions or make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. In addition, prior to the time we have fully invested the net proceeds from this offering, we may fund our quarterly distributions out of such net proceeds. The use of our net proceeds for distributions could be dilutive to our financial results. In addition, funding our distributions from our net proceeds may constitute a return of capital to our investors, which would have the effect of reducing each stockholder’s basis in its holdings of our common stock. We will generally not be required to make distributions with respect to activities conducted through any domestic TRS that we form following the completion of this offering. See “Federal Income Tax Considerations—Requirements for Qualification—Distribution Requirements.” The REIT distribution requirements will, however, generally apply to all taxable income allocated to us from our operating partnership. Income as computed for purposes of the foregoing tax rules will not necessarily correspond to our income as determined for financial reporting purposes.

 

Although we anticipate making quarterly distributions to our stockholders, the timing, form and amount of any distributions to our stockholders will be at the sole discretion of our board of directors and will depend upon a number of factors, including, but not limited to:

 

 

We intend to make distributions to our stockholders in cash to the extent that cash is available for such purpose. We may, however, in the sole discretion of our board of directors, make a distribution of assets or a taxable distribution of our stock (as part of a distribution in which stockholders may elect to receive stock or (subject to a limit measured as a percentage of the total distribution) cash).

 

We anticipate that distributions generally will be taxable as ordinary income to our non-exempt stockholders, although a portion of such distributions may be designated by us as long-term capital gain or qualified dividend income or may constitute a return of capital. To the extent that we decide to make distributions in excess of our earnings and profits, such excess distributions generally will be considered a return of capital.

 

The following table sets forth the capitalization of our predecessor entities as of December 31, 2009 and our capitalization on a pro forma basis as of December 31, 2009, adjusted to reflect our formation transactions, this offering and the use of the net proceeds from this offering as described in “Use of Proceeds” and “Structure and Formation.” You should read this table in conjunction with “Use of Proceeds,” “Selected Historical and Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes to our financial statements appearing elsewhere in this prospectus.

 

 

 

 

Purchasers of our common stock in this offering will experience an immediate and substantial dilution of net tangible book value of their common stock from the assumed initial public offering price based on the mid-point of the price range set forth on the cover page of this prospectus. At December 31, 2009, we had a tangible net book value of approximately $      million or $      per share of common stock assuming the issuance of the OP units in our formation transactions and the exchange of the OP units into shares of our common stock on a one-for-one basis. After giving effect to the sale of the shares of our common stock offered hereby, the deduction of underwriting discounts and other estimated offering and related expenses, the receipt by us of the net proceeds from this offering and the use of these net proceeds by us as described under “Use of Proceeds” and the consummation of our formation transactions, the pro forma net tangible book value at December 31, 2009 would have been $      million or $      per share of common stock. This amount represents an immediate increase in net tangible book value of $      per share to existing holders of our common stock and an immediate dilution in pro forma net tangible book value of $      per share from the assumed initial public offering price of $      per share, which is the mid-point of the price range set forth on the cover page of this prospectus, to purchasers of common stock in this offering. The following table illustrates this per share dilution⁽¹⁾:

 

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $      per share based on the mid-point of the price range set forth on the cover page of this prospectus would

increase (decrease) our pro forma net tangible book value attributable to this offering by $      per share, decrease the pro forma net tangible book value per share after our formation transactions and this offering and increases the dilution in pro forma net tangible book value per share to purchasers of common stock in this offering by $      per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same (assuming no exercise of the underwriters’ overallotment option), and after deducting estimated underwriting discount and estimated expenses of this offering payable by us.

 

You should read the following selected historical and pro forma financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited historical combined financial statements of our Predecessor (as defined below) and notes thereto, and our unaudited pro forma condensed consolidated financial statements and notes thereto. The selected historical and pro forma financial information contained in this section is not intended to replace the audited and unaudited financial statements included elsewhere in this prospectus.

 

Our “Predecessor” shall mean certain entities and their consolidated subsidiaries controlled by Campus Crest Group, LLC, and its consolidated subsidiaries, which carried out the development, construction, ownership and management of the properties that we will own interests in upon completion of this offering, including its interests in two joint ventures with HSRE.

 

The selected historical combined statements of operations and cash flows for the years ended December 31, 2009, 2008 and 2007 and the selected historical combined balance sheet information for the years ended December 31, 2009 and 2008 have been derived from the audited historical combined financial statements of our Predecessor, included elsewhere in this prospectus. The selected historical combined statements of operations for the years ended December 31, 2006 and 2005 and the selected historical combined balance sheet data for the years ended December 31, 2007, 2006 and 2005 have been derived from the unaudited combined financial statements of our Predecessor, not included in this prospectus. The selected pro forma condensed consolidated statement of operations and cash flows for the year ended December 31, 2009 and the selected pro forma condensed consolidated balance sheet information as of December 31, 2009 have been derived from our unaudited pro forma condensed consolidated financial statements, included elsewhere in this prospectus.

 

The selected pro forma condensed consolidated statement of operations data is presented as if this offering and our formation transactions had occurred on January 1, 2009, and the selected pro forma condensed consolidated balance sheet data is presented as if this offering and our formation transactions had occurred on December 31, 2009. The pro forma unaudited condensed consolidated financial statements include the effects of our formation transactions, the sale of the common stock offered hereby, the receipt of the estimated net proceeds from this offering, after deducting the underwriting discount and other estimated offering expenses payable by us, and the use of the estimated net proceeds as described under “Use of Proceeds.” The selected historical combined and pro forma condensed consolidated financial information set forth below and the financial statements included elsewhere in this prospectus do not necessarily reflect what our results of operations, financial condition or cash flows would have been if we had operated as a stand-alone company during all periods presented, and, accordingly, such information should not be relied upon as an indicator of our future performance, financial condition or liquidity.