sv11za
As filed
with the Securities and Exchange Commission on August 17,
2010
Registration Statement
No. 333-166834
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 3
to
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 Registrants
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:
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Paul S. Ware
J. Andrew Robison
Bradley Arant Boult Cummings LLP
1819 Fifth Avenue North
Birmingham, AL 35203
(205) 521-8000
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Jonathan Golden
Arnall Golden Gregory LLP
171 17th Street NW
Suite 2100
Atlanta, GA 30363-1031
(404) 873-8500
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J. Gerard Cummins
Bartholomew A. Sheehan III
Sidley Austin LLP
787 Seventh Avenue
New York, NY 10019
(212) 839-5300
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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):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
(Do not check if a smaller reporting company)
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Smaller reporting company o
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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.
The information in
this preliminary prospectus is not complete and may be changed.
We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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Subject to Completion
Preliminary Prospectus dated August 17, 2010
PROSPECTUS
Shares
Campus Crest Communities,
Inc.
Common Stock
Campus Crest Communities, Inc. is a self-managed,
self-administered and 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.
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 CCG.
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 23 of this prospectus for a discussion of
the risks that you should consider before investing in our
common stock.
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Per
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Share
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Total
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Public offering price
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$
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$
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Underwriting
discount(1)
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$
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$
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Proceeds, before expenses, to us
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$
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$
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(1)
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Excludes a structuring fee payable
to Raymond James & Associates, Inc. of 0.35% of the
total public offering price of our common stock sold in this
offering. See Underwriting.
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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.
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Raymond James
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Citi
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Goldman, Sachs & Co.
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KeyBanc Capital Markets
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RBC Capital Markets
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Baird
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The date of this prospectus
is ,
2010
TABLE OF
CONTENTS
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F-1
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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
i
issuer of the common stock offered hereby, 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 Encore refer to Encore
Interests, Inc., a Delaware corporation; references to
CC-Encore refer to CC-Encore, LLC, a Delaware
limited liability company; 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
MGAs 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.
ii
PROSPECTUS
SUMMARY
This summary highlights selected information appearing
elsewhere in this prospectus. This prospectus includes
information regarding our business and detailed financial data,
as well as information about the common stock we are offering.
You should read this prospectus in its entirety, including
Risk Factors and the financial statements and
related notes appearing elsewhere in this prospectus, before
deciding to purchase our common stock.
Our
Company
Campus Crest Communities, Inc. is a self-managed,
self-administered and 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, 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. We intend to
elect and qualify to be taxed as a real estate investment trust,
or REIT, for U.S. federal income tax purposes
commencing with our taxable year ending December 31, 2010.
We believe that we are one of the largest vertically-integrated
developers, builders, owners and managers of high-quality,
purpose-built student housing properties in the United States
based on beds owned and under management. Upon completion of
this offering and our formation transactions, we will own
interests in 27 student housing properties containing
approximately 5,048 apartment units and 13,580 beds. All of our
properties are recently built, with an average age of
approximately 2.0 years as of June 30, 2010. Twenty-one of
our properties will be wholly-owned and six will be owned
through a joint venture with HSRE, in which we will have a 49.9%
interest. Three of our joint venture properties are scheduled to
open in August 2010.
Our 21 wholly-owned properties contain approximately:
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3,920 apartment units; and
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10,528 beds.
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Our six joint venture properties contain approximately:
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1,128 apartment units; and
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3,052 beds.
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As of June 30, 2010, our 24 operating properties had:
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average occupancy of approximately 89%; and
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average monthly rental revenue per occupied bed of approximately
$460.
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We were formed to continue and expand the student housing
business of Campus Crest Group, which has been engaged in this
business since 2004. Our properties are located in 11 states,
primarily in medium-sized college and university markets, which
we define as markets located outside of major U.S. cities
that have nearby schools generally with overall enrollment of
approximately 8,000 to 20,000 students. We believe such
markets are underserved and are generally experiencing
enrollment growth. All of our properties have been developed,
built and managed by Campus Crest Group, generally based upon a
common prototypical building design. We believe that our use of
this prototypical building design, which we have built
approximately 410 times at our 27 student housing properties
(approximately 15 of such residential buildings comprise one
student housing property), allows us to efficiently deliver a
uniform and proven student housing product in multiple markets.
All of our properties operate under The
Grove®
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brand, and we believe that our brand and the associated
lifestyle are effective differentiators that create higher
visibility and appeal for our properties within their markets.
In addition to our existing properties, we actively seek new
development opportunities. We expect that, subject to completion
of this offering, we will acquire interests in 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. In
total, we have identified over 200 markets and approximately 80
specific sites within these markets as potential future
development opportunities, and our current business plan
contemplates the development of approximately five to seven new
student housing properties per year. No assurance can be given
that we will not adjust our business plan as it relates to
development, or that any particular development opportunity will
be undertaken or completed in accordance with our current
expectations.
Our company is led by our co-founders Ted W. Rollins and Michael
S. Hartnett, each of whom has over 25 years of real estate
investment and operating experience, including the development,
construction and management of over 13,000 student housing beds.
They are supported by over 400 full and part time employees who
carry out our development, construction, property management and
asset management activities.
Our principal executive offices are located at 2100 Rexford
Road, Suite 414, Charlotte, NC 28211. Our telephone number
is
(704) 496-2500.
Our website is located at www.gogrove.com. The information on
our website is not part of this prospectus. We have included our
website address only as an inactive textual reference and do not
intend this to be an active link to our website.
Market
Opportunity
We believe that attractive investment opportunities exist in the
student housing market due to various factors impacting the
supply, demand and profit potential of this market in the United
States. These factors include:
Significant and Sustainable Growth in College
Enrollments. Based on information from the National
Center for Education Statistics and the U.S. Census Bureau,
college enrollments are projected to grow at a faster rate than
the overall population through 2017. This growth is expected to
be driven primarily by: (i) the significant growth of the
college-aged population in the U.S. fueled by the Echo Boom
generation (i.e., the children of the Baby Boomers),
(ii) an increase in the percentage of graduating high
school students choosing to enroll in college and (iii) a
trend toward longer college enrollments.
Outsourcing Pressure Due to Institutional Budgetary
Constraints. We believe that budget shortfalls and
funding constraints at colleges and universities have reduced
the availability of capital to build new student housing supply
commensurate with enrollment increases. Thus, colleges and
universities are increasingly relying on private developers to
offer on-campus and off-campus student housing options to
support enrollment growth.
Obsolescence of Existing Dormitory-Style Student
Housing. Increasingly, on-campus, dormitory-style
student housing facilities are becoming obsolete and are in need
of significant renovation or replacement. Traditional
dormitory-style housing typically consists of shared rooms,
communal bathroom facilities and limited (if any) amenities and
parking. We believe that such facilities do not meet the needs
and preferences of
modern-day
college students, who generally have a higher standard of living
and an increased focus on privacy, amenities and other lifestyle
considerations than previous generations of students.
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Highly Fragmented Ownership with Diminishing Competition and
Costs. The student housing industry is highly
fragmented, which provides opportunities for consolidation.
Moreover, the recent economic environment has reduced the
availability of construction financing, which has restricted the
number of new competitors entering the industry and created
opportunities for well-capitalized firms specializing in student
housing. Meanwhile, as competition has become constrained,
excess capacity in the residential and commercial construction
markets has lowered material and labor costs for firms able to
access capital for new projects.
Availability of Attractive, Long-Term Financing through
Freddie Mac and Fannie Mae. Despite tightening credit
markets, stabilized student housing properties continue
generally to have access to long-term debt financing through
Federal Home Loan Mortgage Corporation, or Freddie
Mac, and Federal National Mortgage Association, or
Fannie Mae.
Our
Competitive Strengths
We believe that we distinguish ourselves from other developers,
builders, owners and managers of student housing properties
through the following competitive strengths:
Experienced Management Team with Demonstrated Track
Record. Our management team is led by
Messrs. Rollins and Hartnett, each of whom has over
25 years of real estate investment, advisory and management
experience. Our management team has overseen the financing,
development, construction and management of all of our student
housing properties with an aggregate cost of approximately
$500 million.
Modern, Well-Located Portfolio. The average age of
our student housing properties is approximately 2.0 years
as of June 30, 2010, and all of our properties are located
in close proximity to the campuses of the schools from which
they draw student-tenants, with an average distance to campus of
approximately 0.6 miles.
Attractive, Branded Properties. All of our
properties operate under The
Grove®
brand, and all of our properties feature private bedrooms with
en suite bathrooms, full furnishings, state-of-the-art
technology, ample parking, and a broad array of other
on-site
amenities, such as resort-style swimming pools, basketball and
volleyball courts, and community clubhouses with regularly
planned social activities. We strive to offer not just an
apartment but an entire lifestyle and community experience
designed to appeal to the
modern-day
college student.
Proven and Scalable Business Model. We believe that
our vertically-integrated business model enables us to deliver
properties economically while maintaining consistency in our
building design, construction quality and amenity package. We
continue to refine our processes and systems in an effort to
reduce costs and improve quality, having overseen the
construction of the same prototypical residential building
approximately 410 times during the last six years.
Focus on Underserved College Markets. We generally
focus on medium-sized college and university markets. While
total enrollments in these markets are generally lower than
enrollments in larger educational markets, we believe that the
overall market dynamics are often more favorable (e.g.,
higher enrollment growth rates and fewer purpose-built
student housing competitors).
Conservative Capitalization. Upon the completion of
this offering and the application of the net proceeds therefrom,
our debt to total market capitalization ratio will be
approximately %, which we believe
will provide us with incremental financing capacity to fund
identified future growth opportunities. In addition, upon
completion of this offering, we expect to obtain
a -year,
$ million senior secured
revolving credit facility that may be used for general corporate
purposes, payment of distributions and to finance, among other
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things, identified future growth opportunities, including the
five properties that we expect to commence building upon
completion of this offering.
Our
Business and Growth Strategies
Our objective is to maximize total returns to our stockholders
through the pursuit of the following business and growth
strategies:
Utilize Our Vertically-Integrated Platform. Our
vertically-integrated platform performs each key function in the
student housing value chain: project development, project
construction, property management and asset management. We
believe that the ongoing feedback and accountability facilitated
by our vertically-integrated platform allow us to improve
efficiency, reduce costs, control project timing and enhance the
overall quality of our properties.
Target Attractive Markets. We utilize a proprietary
underwriting model with over 60 inputs to evaluate the relative
attractiveness of each potential development market. We
generally focus on markets that exceed certain student
enrollment thresholds and exhibit favorable student housing
supply-demand dynamics. Our due diligence process is designed to
identify markets in which we can operate successfully.
Optimize Our Properties and Brand Value. We employ a
consistent set of operating principles across our properties in
order to optimize the student lifestyle experience and enhance
the value and recognition of our brand. We believe that our
focus on enhancing student lifestyle and promoting a sense of
community at our properties drives improved occupancy and allows
us to charge premium rents.
Development Growth. We believe that our
vertically-integrated platform generally allows us to generate
more favorable returns by developing new properties versus
acquiring existing properties from third parties, and we
therefore anticipate that in-house development will remain the
primary driver of our growth. Our current business plan
contemplates the development of approximately five to seven new
student housing properties per year from our identified pipeline
of opportunities, including five properties with completion
targeted for the
2011-2012
academic year. See Business and PropertiesExpected
2011 Development Properties.
Acquisition Growth. We may also seek to grow by
selectively acquiring student housing properties from third
parties. Generally, we anticipate that any properties acquired
from third parties would meet our investment criteria for
development properties and fit into our overall strategy in
terms of property quality, proximity to campus, bed-bath parity,
availability of amenities and return on investment.
Summary
Risk Factors
An investment in our common stock involves various risks. You
should carefully consider the matters discussed in Risk
Factors beginning on page 23 of this prospectus
before making a decision to invest in our common stock. Some of
the risks include the following:
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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.
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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.
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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
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in our relationships with such schools or changes in the
schools admissions or residency policies or reputations
could materially and adversely affect us.
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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.
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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.
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Our success depends on key personnel whose continued service is
not guaranteed, and their departure could materially and
adversely affect us.
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The current economic environment could reduce enrollment and
limit the demand for our properties, which could materially and
adversely affect us.
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In each of the past five fiscal years, we have experienced
significant net losses; if this trend continues, we could be
materially and adversely affected.
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If we are unable to acquire properties on favorable terms, our
future growth could be materially and adversely affected.
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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.
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Our indebtedness exposes us to a risk of default and will reduce
our free cash flow, which could materially and adversely affect
us.
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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.
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Our management team has not previously operated a REIT, and this
inexperience could materially and adversely affect us.
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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.
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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.
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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.
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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.
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We may not be able to make our initial distributions or maintain
our initial, or any subsequent, distribution rate.
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A public market for our common stock may never develop and your
ability to sell your shares of our common stock may be limited.
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Common stock eligible for future sale may adversely affect the
market price of our common stock.
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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.
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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.
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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.
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To qualify and remain qualified as a REIT, we will likely rely
on the availability of equity and debt capital to fund our
business.
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Complying with REIT requirements may cause us to forgo otherwise
attractive investment opportunities, which could materially and
adversely affect us.
|
6
Our
Properties
The following table presents certain summary information about
the 21 properties that we will own 100% interests in and the six
joint venture properties that we will own 49.9% interests in
upon completion of this offering and our formation transactions.
All properties were developed and built by us.
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy
|
|
|
Average Monthly
|
|
|
|
|
|
|
|
|
|
|
|
Fall 2009
|
|
|
Distance to
|
|
|
Number
|
|
|
Number
|
|
|
as of
|
|
|
Rental Revenue
|
|
|
|
|
|
|
|
Year
|
|
|
|
Overall
|
|
|
Campus
|
|
|
of
|
|
|
of
|
|
|
June 30,
|
|
|
Per Occupied
|
|
|
|
City
|
|
State
|
|
Opened
|
|
Primary University Served
|
|
Enrollment
|
|
|
(miles)
|
|
|
Units
|
|
|
Beds
|
|
|
2010
|
|
|
Bed
|
|
|
|
|
Wholly-Owned Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Asheville
|
|
NC
|
|
2005
|
|
University of NC - Asheville
|
|
|
3,695
|
|
|
|
0.1
|
|
|
|
154
|
|
|
|
448
|
|
|
|
97
|
%
|
|
$
|
484
|
|
2
|
|
Carrollton
|
|
GA
|
|
2006
|
|
University of West Georgia
|
|
|
11,500
|
|
|
|
0.1
|
|
|
|
168
|
|
|
|
492
|
|
|
|
99
|
%
|
|
$
|
426
|
|
3
|
|
Las Cruces
|
|
NM
|
|
2006
|
|
New Mexico State University
|
|
|
18,497
|
|
|
|
0.4
|
|
|
|
168
|
|
|
|
492
|
|
|
|
87
|
%
|
|
$
|
441
|
|
4
|
|
Milledgeville
|
|
GA
|
|
2006
|
|
Georgia College & State University
|
|
|
6,633
|
|
|
|
0.1
|
|
|
|
168
|
|
|
|
492
|
|
|
|
97
|
%
|
|
$
|
500
|
|
5
|
|
Abilene
|
|
TX
|
|
2007
|
|
Abilene Christian University
|
|
|
4,838
|
|
|
|
0.5
|
|
|
|
192
|
|
|
|
504
|
|
|
|
81
|
%
|
|
$
|
442
|
|
6
|
|
Ellensburg
|
|
WA
|
|
2007
|
|
Central Washington University
|
|
|
10,187
|
|
|
|
0.5
|
|
|
|
192
|
|
|
|
504
|
|
|
|
99
|
%
|
|
$
|
462
|
|
7
|
|
Greeley
|
|
CO
|
|
2007
|
|
University of Northern Colorado
|
|
|
12,711
|
|
|
|
1.0
|
|
|
|
192
|
|
|
|
504
|
|
|
|
79
|
%
|
|
$
|
439
|
|
8
|
|
Jacksonville
|
|
AL
|
|
2007
|
|
Jacksonville State University
|
|
|
9,351
|
|
|
|
0.2
|
|
|
|
192
|
|
|
|
504
|
|
|
|
85
|
%
|
|
$
|
424
|
|
9
|
|
MobilePhase I (1)
|
|
AL
|
|
2007
|
|
University of South Alabama
|
|
|
14,522
|
|
|
|
On-
Campus
|
|
|
|
192
|
|
|
|
504
|
|
|
|
96
|
%
|
|
$
|
453
|
|
10
|
|
MobilePhase II (1)
|
|
AL
|
|
2008
|
|
University of South Alabama
|
|
|
14,522
|
|
|
|
On-
Campus
|
|
|
|
192
|
|
|
|
504
|
|
|
|
98
|
%
|
|
$
|
453
|
|
11
|
|
Nacogdoches
|
|
TX
|
|
2007
|
|
Stephen F. Austin University
|
|
|
12,845
|
|
|
|
0.4
|
|
|
|
196
|
|
|
|
522
|
|
|
|
96
|
%
|
|
$
|
484
|
|
12
|
|
Cheney
|
|
WA
|
|
2008
|
|
Eastern Washington University
|
|
|
11,302
|
|
|
|
0.5
|
|
|
|
192
|
|
|
|
512
|
|
|
|
98
|
%
|
|
$
|
450
|
|
13
|
|
Jonesboro
|
|
AR
|
|
2008
|
|
Arkansas State University
|
|
|
12,156
|
|
|
|
0.2
|
|
|
|
192
|
|
|
|
504
|
|
|
|
82
|
%
|
|
$
|
426
|
|
14
|
|
Lubbock
|
|
TX
|
|
2008
|
|
Texas Tech University
|
|
|
30,049
|
|
|
|
2.1
|
|
|
|
192
|
|
|
|
504
|
|
|
|
86
|
%
|
|
$
|
473
|
|
15
|
|
Stephenville
|
|
TX
|
|
2008
|
|
Tarleton State University
|
|
|
8,598
|
|
|
|
0.8
|
|
|
|
192
|
|
|
|
504
|
|
|
|
99
|
%
|
|
$
|
451
|
|
16
|
|
Troy
|
|
AL
|
|
2008
|
|
Troy University
|
|
|
6,679
|
|
|
|
0.4
|
|
|
|
192
|
|
|
|
514
|
|
|
|
94
|
%
|
|
$
|
455
|
|
17
|
|
Waco
|
|
TX
|
|
2008
|
|
Baylor University
|
|
|
14,614
|
|
|
|
0.8
|
|
|
|
192
|
|
|
|
504
|
|
|
|
89
|
%
|
|
$
|
516
|
|
18
|
|
Wichita
|
|
KS
|
|
2008
|
|
Wichita State University
|
|
|
14,823
|
|
|
|
1.1
|
|
|
|
192
|
|
|
|
504
|
|
|
|
92
|
%
|
|
$
|
440
|
|
19
|
|
Wichita Falls
|
|
TX
|
|
2008
|
|
Midwestern State University
|
|
|
6,341
|
|
|
|
1.2
|
|
|
|
192
|
|
|
|
504
|
|
|
|
71
|
%
|
|
$
|
451
|
|
20
|
|
Murfreesboro
|
|
TN
|
|
2009
|
|
Middle Tennessee State University
|
|
|
25,188
|
|
|
|
0.8
|
|
|
|
186
|
|
|
|
504
|
|
|
|
90
|
%
|
|
$
|
452
|
|
21
|
|
San Marcos
|
|
TX
|
|
2009
|
|
Texas State University
|
|
|
30,816
|
|
|
|
1.7
|
|
|
|
192
|
|
|
|
504
|
|
|
|
97
|
%
|
|
$
|
528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total of Wholly-Owned Properties
|
|
|
13,327
|
(2)
|
|
|
0.6
|
(2)
|
|
|
3,920
|
|
|
|
10,528
|
|
|
|
91
|
% (3)
|
|
$
|
460
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy
|
|
Average Monthly
|
|
|
|
|
|
|
|
|
|
|
Fall 2009
|
|
Distance to
|
|
|
|
|
|
as of
|
|
Rental Revenue
|
|
|
|
|
|
|
Year
|
|
|
|
Overall
|
|
Campus
|
|
Number
|
|
Number
|
|
June 30,
|
|
Per Occupied
|
|
|
City
|
|
State
|
|
Opened
|
|
Primary University Served
|
|
Enrollment
|
|
(miles)
|
|
of Units
|
|
of Beds
|
|
2010
|
|
Bed
|
|
|
|
Joint Venture Properties 49.9% Ownership
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Lawrence
(4)
|
|
KS
|
|
2009
|
|
University of Kansas
|
|
|
29,242
|
|
|
|
1.6
|
|
|
|
172
|
|
|
|
500
|
|
|
|
70
|
%
|
|
$
|
444
|
|
23
|
|
Moscow (1)
|
|
ID
|
|
2009
|
|
University of Idaho
|
|
|
11,957
|
|
|
|
0.5
|
|
|
|
192
|
|
|
|
504
|
|
|
|
50
|
%
|
|
$
|
453
|
|
24
|
|
San Angelo
|
|
TX
|
|
2009
|
|
Angelo State University
|
|
|
6,387
|
|
|
|
0.3
|
|
|
|
192
|
|
|
|
504
|
|
|
|
88
|
%
|
|
$
|
470
|
|
25
|
|
Conway (5)
|
|
AR
|
|
2010
|
|
University of Central Arkansas
|
|
|
11,781
|
|
|
|
0.4
|
|
|
|
180
|
|
|
|
504
|
|
|
|
NA
|
|
|
|
NA
|
|
26
|
|
Huntsville
(5)
|
|
TX
|
|
2010
|
|
Sam Houston State University
|
|
|
16,772
|
|
|
|
0.2
|
|
|
|
192
|
|
|
|
504
|
|
|
|
NA
|
|
|
|
NA
|
|
27
|
|
Statesboro
(5)
|
|
GA
|
|
2010
|
|
Georgia Southern University
|
|
|
19,086
|
|
|
|
0.7
|
|
|
|
200
|
|
|
|
536
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total of Joint Venture Properties
|
|
|
15,871
|
(2)
|
|
|
0.6
|
(2)
|
|
|
1,128
|
|
|
|
3,052
|
|
|
|
70
|
% (3)
|
|
$
|
459
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties
|
|
|
13,892
|
(2)
|
|
|
0.6
|
(2)
|
|
|
5,048
|
|
|
|
13,580
|
|
|
|
89
|
% (3)
|
|
$
|
460
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Property subject to a ground lease.
|
|
(2) |
|
Average.
|
|
(3) |
|
Weighted average for the month
ended June 30, 2010.
|
|
(4) |
|
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.
|
|
|
|
(5) |
|
Property scheduled to open in
August 2010. As of June 30, 2010, the percentage of beds
leased at Conway, AR, Huntsville, TX and Statesboro, GA was 79%,
100% and 86%, respectively.
|
Our
Financing Strategy
Upon the completion of this offering and the application of the
net proceeds therefrom, we will have total consolidated
indebtedness of approximately $132.3 million (which does
not include any indebtedness we may incur in connection with any
future distributions) and 12 unencumbered properties available
to serve as collateral for an
expected -year,
$ million senior secured
revolving credit facility, or our revolving credit facility.
Amounts outstanding under our revolving credit facility will
bear interest at a floating rate equal
to .
We anticipate that a portion of our revolving credit facility
will be used, in conjunction with construction debt, to finance
the construction of the five properties that we expect to
commence building upon the completion of this offering. In
addition, we may fund distributions to our stockholders with
borrowings under our revolving credit facility. Our ability to
borrow from time to time under this facility is expected to be
subject to certain conditions and the satisfaction of specified
financial covenants. Our revolving credit facility is also
expected to contain covenants that restrict our ability to pay
dividends or other amounts to our stockholders unless certain
financial tests are satisfied.
We generally intend to limit our ratio of debt to total market
capitalization to not greater
than %, although our charter places
no limit on the amount of indebtedness that we may incur and we
may exceed this level from time to time. We intend to finance
our long-term growth with common and preferred equity issuances
and debt financing having staggered maturities. Our debt may
include mortgage debt secured by our properties, as well as
unsecured debt, and such debt may require us to pay fixed or
floating rates of interest. We will seek to utilize Freddie Mac
and Fannie Mae long-term debt financing for stabilized
properties to the extent possible. In addition to our three
joint venture properties scheduled to open in August 2010, we
may also seek in the future to finance development projects
through unconsolidated joint ventures with third parties.
8
Structure
and Formation
We were formed as a Maryland corporation on March 1, 2010.
Our operating partnership was formed as a Delaware limited
partnership on March 4, 2010. Through our wholly-owned
subsidiary, Campus Crest Communities GP, LLC, we are the sole
general partner of our operating partnership, and we will
conduct substantially all of our business through our operating
partnership. Upon completion of this offering and our formation
transactions, we will own a %
limited partnership interest in our operating partnership. MXT
Capital, 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, will own a %
limited partnership interest in our operating partnership. The
Ricker Group, which owned interests in our predecessor entities
prior to the consummation of our formation transactions, will in
the aggregate own a % limited
partnership interest in our operating partnership. Certain
third-party investors, who owned interests in our predecessor
entities prior to the consummation of our formation
transactions, will in the aggregate own
a % limited partnership interest in
our operating partnership.
Certain of our officers and directors will own restricted common
stock, representing approximately %
of our common stock outstanding after completion of this
offering.
Formation
Transactions
Prior to our formation transactions, all of the interests in our
properties were owned by Campus Crest Group and third-party
investors, including the Ricker Group and HSRE. The value of
these interests was determined by our executive officers based
on a capitalization rate analysis, an internal rate of return
analysis, an assessment of the fair market value of the
properties and the consideration of other factors, such as per
bed value and the liquidation preference with respect to certain
interests. We did not obtain third-party appraisals or
valuations in connection with the formation transactions.
Concurrently with this offering, we will engage in the following
formation transactions, which are designed to:
|
|
|
|
|
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.
|
Set forth below is an overview of our formation transactions:
|
|
|
|
|
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 approximately $4.5 million (which will immediately be
used to make capital contributions to certain entities, which
will in turn immediately use such capital contributions solely
to repay indebtedness)
and OP
units, representing a % limited
partnership interest in our operating partnership.
|
In its contribution agreement, MXT Capital provides us with
certain real estate, ownership and operational representations,
warranties and covenants with respect to its student housing
business and interests in the predecessor entities being
contributed to our operating partnership. For a more detailed
description of the representations, warranties
9
and covenants being provided by MXT Capital, see
Structure and FormationFormation Transactions.
MXT Capital will indemnify us with respect to losses resulting
from breaches of its representations, warranties and covenants
and for any real estate transfer or mortgage recording tax
liabilities that we may incur; these indemnification obligations
generally are subject to a $250,000 deductible and capped at an
amount equal to the aggregate equity consideration received by
MXT Capital pursuant to the contribution agreement (other than
the tax liability indemnity, which is not subject to either the
deductible or the cap) and are generally limited to claims
brought within 18 months from the completion of this offering
(with certain claims surviving indefinitely).
|
|
|
|
|
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.
|
In its contribution agreement, the Ricker Group provides us with
certain ownership and limited real estate and operational
representations, warranties and covenants. For a more detailed
description of the representations, warranties and covenants
being provided by the Ricker Group, see Structure and
FormationFormation Transactions. The Ricker Group
will indemnify us with respect to losses resulting from breaches
of its representations, warranties and covenants; these
indemnification obligations generally are subject to a $250,000
deductible and capped at an amount equal to the aggregate
consideration received by the Ricker Group pursuant to the
contribution agreement with respect to certain ownership matters
and $7.5 million with respect to all other matters and are
generally limited to claims brought within 18 months from the
completion of this offering (with certain claims surviving
indefinitely).
|
|
|
|
|
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 including authority to enter into the agreement, the
absence of claims or litigation involving the contributed
interest and the obtaining of any necessary consents to the
contribution of the interests. The third-party investors also
provide covenants under the agreements, including not to
transfer or dispose of any of their contributed interests, 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,
|
10
|
|
|
|
|
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
and HSRE will own a 50.1% interest in these properties.
|
|
|
|
|
|
We will purchase the preferred membership interest in our
CC-Encore joint venture for approximately $3.9 million and
terminate CC-Encore.
|
The number of OP units and cash amounts to be received by the
parties specified above have been fixed and are not subject to
change based upon the public offering price of the common stock
to be sold in this offering or any other factor.
As a result of our formation transactions:
|
|
|
|
|
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 business.
|
11
Consequences
of this Offering and Our Formation Transactions
The following diagram depicts the ownership structure of our
company, our operating partnership, certain subsidiaries through
which we will conduct our development, construction, property
management and asset management activities, and our joint
venture with HSRE, upon completion of this offering and our
formation transactions:
|
|
|
(1) |
|
Includes an aggregate of 249,335 shares of restricted
common stock to be granted to our independent directors, certain
of our executive officers and certain members of our management
team. |
|
(2) |
|
Represents a limited partnership interest in our operating
partnership. |
Benefits
to Related Parties
In connection with this offering and our formation transactions,
MXT Capital, the Ricker Group and certain of our executive
officers, members of our management team and members of our
board of directors will receive material financial and other
benefits, as described below. Each of Ted W. Rollins, our
co-chairman and chief executive officer, and Michael S.
Hartnett, our co-
12
chairman and chief investment officer, will, through his
respective ownership of MXT Capital, be entitled to participate
in the benefits realized by MXT Capital in connection with our
formation transactions. In addition, Carl H. Ricker, Jr.
will, through his ownership in the Ricker Group, be entitled to
participate in the benefits realized by the Ricker Group in
connection with our formation transactions. We have included the
Ricker Group as a related party due to the substantial
investment that it held in our predecessor entities and the
substantial returns paid to it by our predecessor entities. For
a more detailed discussion of these benefits, see
Management and Certain Relationships and
Related Party Transactions.
|
|
|
|
|
Our operating partnership will issue to MXT
Capital
OP units in exchange for MXT Capitals contribution to our
operating partnership of the interests owned by MXT Capital in
the predecessor entities and its student housing business.
|
|
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|
|
|
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 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, 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. This requirement will
also restrict our ability to arrange financing for our
operations as well as our ability to manage our capital
structure.
|
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 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 incurs 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.
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|
|
|
|
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.
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|
|
|
MXT Capital will receive Campus Crest Groups 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 Groups 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.
|
13
|
|
|
|
|
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. Each of Messrs.
Rollins and Hartnett will be released from certain personal
guarantees with respect to the preferred membership interest in
CC-Encore.
|
|
|
|
|
|
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, directors and certain members of our
management team will receive material benefits, including:
|
|
|
|
|
|
a grant of 249,335 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
Groups deferred compensation plan, 116,000 shares of
restricted common stock granted to certain of our executive
officers and certain members of our management team and an
aggregate grant of 33,335 shares of restricted common stock to
our independent directors);
|
|
|
|
employment agreements providing for salary, bonus and other
benefits, including severance upon a termination of employment
under certain circumstances, as described under
ManagementEmployment 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
ManagementDirector 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.
|
14
Restrictions
on Ownership of Our Capital Stock
Our charter, subject to certain exceptions and after the
application of certain attribution rules, 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,
which we refer to in this prospectus collectively as the stock
ownership limits. Our charter also prohibits any person from
directly or indirectly owning any class of our capital stock if
such ownership would result in us being closely held
under Section 856(h) of the Internal Revenue Code of 1986,
as amended, or the Internal Revenue Code, or
otherwise cause us to fail to qualify as a REIT.
Our charter generally provides that any capital stock owned or
transferred in violation of the foregoing restrictions will be
deemed to be transferred to a charitable trust for the benefit
of a charitable beneficiary, and the purported owner or
transferee will acquire no rights in such stock. If the
foregoing is ineffective for any reason to prevent a violation
of these restrictions, then our charter provides that the
transfer of such shares will be void.
No person may transfer our capital stock or any interest in our
capital stock if the transfer would result in our capital stock
being beneficially owned by fewer than 100 persons on or
after the first day of our second taxable year. Our charter
provides that any attempt to transfer our capital stock in
violation of this minimum will be void.
Lock-up
Agreements
We, each of our executive officers and directors, MXT Capital
and Carl H. Ricker, Jr. have agreed with the underwriters
not to offer, sell or otherwise dispose of any common stock or
any securities convertible into or exercisable or exchangeable
for common stock (including OP units) or any rights to acquire
common stock for a period of one year after the date of this
prospectus, without the prior written consent of Raymond
James & Associates, Inc., Citigroup Global Markets
Inc., Goldman, Sachs & Co. and KeyBanc Capital Markets
Inc., the representatives of the underwriters, subject to
limited exceptions.
Our
Distribution Policy
We intend to pay regular quarterly distributions to our common
stockholders. We intend to pay a pro rata initial distribution
with respect to the period commencing on the completion of this
offering and ending December 31, 2010, based on
$
per share for a full quarter. On an annualized basis, this would
be $
per share, or an initial annual distribution rate of
approximately %
based on an assumed initial public offering price of
$
per share (the mid-point of the price range set forth on the
cover page of this prospectus). This estimated initial annual
distribution is expected to exceed our per-share estimated cash
available for distribution to our common stockholders for the
12-month
period ending June 30, 2011. Our ability to fund this
distribution will depend, in part, upon the receipt of cash flow
from three uncombined properties that are scheduled to open in
August 2010, from continued successful leasing of our existing
portfolio, from expected future development activity and from
fee income from development, construction and management
services. To the extent these sources are insufficient, we
intend to use our working capital or borrowings under our
revolving credit facility to fund these distributions. After
giving effect to the adjustments reflected in the table under
the caption Our Distribution Policy, we may have to
fund $ million of our
estimated initial annual distributions with borrowings under our
revolving credit facility. To the extent we use working capital
or borrowings under our revolving credit facility to fund these
distributions, our cash available for investment in our
business, including for property development and acquisition
purposes, will decrease.
15
In addition, in order to qualify for taxation as a REIT, we must
make annual distributions to stockholders of at least 90% of our
REIT taxable income. If our cash available for distribution is
not sufficient to meet the annual distribution requirements
applicable to REITs, we would be required to fund the minimum
required distribution from other sources, which could include
asset sales (subject to the limitations imposed by the terms of
the tax protection agreement) or borrowings. Funding a
distribution through asset sales or borrowings could reduce our
cash flow from operations, increase our interest expense and
decrease our cash available for investment in our business. We
may also choose to meet this distribution requirement by
distributing a combination of cash and shares of our common
stock. Under recent Internal Revenue Service, or
IRS, guidance, up to 90% of any such distribution
may be made in shares of our common stock. If we choose to make
a distribution consisting in part of shares of our common stock,
the holders of our common stock may be subject to adverse tax
consequences.
See Risk FactorsRisks Related to this
OfferingWe may not be able to make an initial distribution
or maintain any initial, or any subsequent, distribution rate
and we may be required to fund the minimum distribution
necessary to qualify as a REIT from sources that could reduce
our cash flows.
Our Tax
Status
In connection with this offering, we intend to elect to be
treated as a REIT under Sections 856 through 859 of the
Internal Revenue Code commencing with our taxable year ending on
December 31, 2010. Our qualification as a REIT depends upon
our ability to meet on a continuing basis, through actual
investment and operating results, various complex requirements
under the Internal Revenue Code relating to, among other things,
the sources of our gross income, the composition and values of
our assets, our distribution levels and the diversity of
ownership of our stock. We believe that we will be organized in
conformity with the requirements for qualification and taxation
as a REIT under the Internal Revenue Code and that our intended
manner of operation will enable us to meet the requirements for
qualification and taxation as a REIT.
As a REIT, we generally will not be subject to U.S. federal
income tax on our taxable income that we distribute currently to
our stockholders. If we fail to qualify as a REIT in any taxable
year and do not qualify for certain statutory relief provisions,
we will be subject to U.S. federal income tax at regular
corporate rates and generally will be precluded from qualifying
as a REIT for the subsequent four taxable years following the
year during which we lost our REIT qualification. Accordingly,
our failure to qualify as a REIT could materially and adversely
affect us, including our ability to make distributions to our
stockholders in the future. Even if we qualify as a REIT, we may
be subject to some U.S. federal, state and local taxes on
our income or property and the income of our taxable REIT
subsidiaries, or TRSs, will be subject to taxation
at normal corporate rates. See Federal Income Tax
Considerations.
16
SUMMARY
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION
You should read the following summary selected historical and
pro forma financial information in conjunction with
Managements 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 summary 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 summary selected historical combined statements of
operations and cash flows for the six months ended June 30,
2010 and 2009 and the summary selected historical combined
balance sheet information as of June 30, 2010 have been
derived from the unaudited historical combined financial
statements of our Predecessor, included elsewhere in this
prospectus. The unaudited historical combined financial
statements have been prepared on the same basis as our audited
historical combined financial statements and, in the opinion of
our management, reflect all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of this
information. The results for any interim period are not
necessarily indicative of the results that may be expected for a
full year. The summary selected historical combined statements
of operations and cash flows for the years ended
December 31, 2009, 2008 and 2007 and the summary selected
historical combined balance sheet information as of
December 31, 2009 and 2008 have been derived from the
audited historical combined financial statements of our
Predecessor, included elsewhere in this prospectus. The summary
selected pro forma condensed consolidated statements of
operations for the six months ended June 30, 2010 and for
the year ended December 31, 2009 and the summary selected
pro forma condensed consolidated balance sheet information as of
June 30, 2010 have been derived from our unaudited pro
forma condensed consolidated financial statements, included
elsewhere in this prospectus.
The summary selected pro forma condensed consolidated statements
of operations and balance sheet information set forth below has
been adjusted to reflect 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 unaudited pro
forma condensed consolidated financial information for the year
ended December 31, 2009 and as of and for the six months
ended June 30, 2010 is presented as if this offering, the
use of net proceeds therefrom and our formation transactions all
had occurred as of the last day of the period presented for the
purposes of the unaudited pro forma condensed consolidated
balance sheet information and on the first day of the period
presented for the purposes of the unaudited pro forma condensed
consolidated statements of operations.
The summary 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.
17
Statement
of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Campus
|
|
|
Historical Campus Crest Communities
|
|
|
|
Crest Communities, Inc.
|
|
|
Predecessor
|
|
|
|
Six Months
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
December 31,
|
|
|
June 30,
|
|
|
Year Ended December 31,
|
|
|
|
June 30, 2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing
|
|
$
|
25,986
|
|
|
$
|
45,021
|
|
|
$
|
24,443
|
|
|
$
|
21,219
|
|
|
$
|
43,708
|
|
|
$
|
30,813
|
|
|
$
|
15,598
|
|
Student housing services
|
|
|
1,486
|
|
|
|
2,289
|
|
|
|
1,426
|
|
|
|
1,011
|
|
|
|
2,265
|
|
|
|
798
|
|
|
|
110
|
|
Development, construction and management services
|
|
|
17,311
|
|
|
|
24,540
|
|
|
|
30,738
|
|
|
|
37,258
|
|
|
|
60,711
|
|
|
|
2,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
44,783
|
|
|
|
71,850
|
|
|
|
56,607
|
|
|
|
59,488
|
|
|
|
106,684
|
|
|
|
34,116
|
|
|
|
15,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing operations
|
|
|
14,229
|
|
|
|
23,707
|
|
|
|
13,455
|
|
|
|
11,416
|
|
|
|
23,155
|
|
|
|
14,890
|
|
|
|
7,470
|
|
Development, construction and management services
|
|
|
16,140
|
|
|
|
24,847
|
|
|
|
28,644
|
|
|
|
35,693
|
|
|
|
60,200
|
|
|
|
2,147
|
|
|
|
|
|
General and administrative
|
|
|
3,445
|
|
|
|
6,450
|
|
|
|
2,618
|
|
|
|
2,454
|
|
|
|
5,617
|
|
|
|
5,422
|
|
|
|
3,467
|
|
Ground leases
|
|
|
94
|
|
|
|
264
|
|
|
|
94
|
|
|
|
96
|
|
|
|
264
|
|
|
|
224
|
|
|
|
40
|
|
Write-off of pre-development costs
|
|
|
|
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
1,211
|
|
|
|
203
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,792
|
|
|
|
18,598
|
|
|
|
9,429
|
|
|
|
9,115
|
|
|
|
18,371
|
|
|
|
13,573
|
|
|
|
5,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
43,700
|
|
|
|
75,077
|
|
|
|
54,240
|
|
|
|
58,774
|
|
|
|
108,818
|
|
|
|
36,459
|
|
|
|
16,742
|
|
Equity in loss of uncombined entities
|
|
|
(1,112
|
)
|
|
|
(565
|
)
|
|
|
(194
|
)
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(29
|
)
|
|
|
(3,792
|
)
|
|
|
2,173
|
|
|
|
714
|
|
|
|
(2,193
|
)
|
|
|
(2,343
|
)
|
|
|
(1,034
|
)
|
Nonoperating income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,287
|
)
|
|
|
(8,646
|
)
|
|
|
(10,686
|
)
|
|
|
(7,369
|
)
|
|
|
(15,871
|
)
|
|
|
(14,946
|
)
|
|
|
(6,583
|
)
|
Change in fair value of interest rate derivatives
|
|
|
279
|
|
|
|
90
|
|
|
|
178
|
|
|
|
2,680
|
|
|
|
797
|
|
|
|
(8,758
|
)
|
|
|
(2,115
|
)
|
Income taxes
|
|
|
(128
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
45
|
|
|
|
44
|
|
|
|
45
|
|
|
|
(19
|
)
|
|
|
44
|
|
|
|
(50
|
)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expenses
|
|
|
(4,091
|
)
|
|
|
(8,585
|
)
|
|
|
(10,463
|
)
|
|
|
(4,708
|
)
|
|
|
(15,030
|
)
|
|
|
(23,754
|
)
|
|
|
(8,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,120
|
)
|
|
|
(12,377
|
)
|
|
|
(8,290
|
)
|
|
|
(3,994
|
)
|
|
|
(17,223
|
)
|
|
|
(26,097
|
)
|
|
|
(9,632
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(288
|
)
|
|
|
(864
|
)
|
|
|
(5,025
|
)
|
|
|
(2,060
|
)
|
|
|
(10,486
|
)
|
|
|
(870
|
)
|
|
|
(2,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Predecessor
|
|
$
|
(3,832
|
)
|
|
$
|
(11,513
|
)
|
|
$
|
(3,265
|
)
|
|
$
|
(1,934
|
)
|
|
$
|
(6,737
|
)
|
|
$
|
(25,227
|
)
|
|
$
|
(7,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Balance
Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Campus Crest
|
|
|
Historical Campus Crest
|
|
|
|
Communities, Inc.
|
|
|
Communities Predecessor
|
|
|
|
As of
|
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
|
June 30, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Student housing properties
|
|
$
|
370,400
|
|
|
$
|
348,466
|
|
|
$
|
347,157
|
|
|
$
|
326,217
|
|
Accumulated depreciation
|
|
|
(48,403
|
)
|
|
|
(48,403
|
)
|
|
|
(38,999
|
)
|
|
|
(20,794
|
)
|
Development in process
|
|
|
7,868
|
|
|
|
3,641
|
|
|
|
3,300
|
|
|
|
15,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net
|
|
|
329,865
|
|
|
|
303,704
|
|
|
|
311,458
|
|
|
|
321,165
|
|
Investment in uncombined entity
|
|
|
16,186
|
|
|
|
3,257
|
|
|
|
2,980
|
|
|
|
776
|
|
Other assets
|
|
|
29,048
|
|
|
|
21,412
|
|
|
|
17,358
|
|
|
|
20,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
375,099
|
|
|
$
|
328,373
|
|
|
$
|
331,796
|
|
|
$
|
342,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and construction loans
|
|
$
|
132,304
|
|
|
$
|
329,374
|
|
|
$
|
329,102
|
|
|
$
|
322,426
|
|
Lines of credit and other debt
|
|
|
|
|
|
|
17,689
|
|
|
|
14,070
|
|
|
|
9,237
|
|
Other liabilities
|
|
|
29,950
|
|
|
|
34,756
|
|
|
|
31,340
|
|
|
|
32,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
162,254
|
|
|
|
381,819
|
|
|
|
374,512
|
|
|
|
364,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners equity (deficit)
|
|
|
267,020
|
|
|
|
(54,245
|
)
|
|
|
(50,090
|
)
|
|
|
(42,502
|
)
|
Noncontrolling interest
|
|
|
(54,175
|
)
|
|
|
799
|
|
|
|
7,374
|
|
|
|
20,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
212,845
|
|
|
|
(53,446
|
)
|
|
|
(42,716
|
)
|
|
|
(22,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
375,099
|
|
|
$
|
328,373
|
|
|
$
|
331,796
|
|
|
$
|
342,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Campus Crest
|
|
|
|
Communities, Inc.
|
|
|
|
Six Months
|
|
|
Year Ended
|
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
June 30, 2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Funds from operations (FFO)
(1):
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,120
|
)
|
|
$
|
(12,377
|
)
|
Real estate related depreciation and amortization
|
|
|
9,643
|
|
|
|
18,432
|
|
Equity portion of real estate related depreciation and
amortization on equity investees
|
|
|
691
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
6,214
|
|
|
$
|
6,410
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Campus Crest Communities Predecessor
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operations
|
|
$
|
2,739
|
|
|
$
|
2,068
|
|
|
$
|
4,353
|
|
|
$
|
1,264
|
|
|
$
|
(1,209
|
)
|
Net cash used in investing
|
|
|
(2,662
|
)
|
|
|
(12,830
|
)
|
|
|
(23,552
|
)
|
|
|
(148,385
|
)
|
|
|
(113,043
|
)
|
Net cash provided by financing
|
|
|
75
|
|
|
|
5,523
|
|
|
|
11,060
|
|
|
|
144,781
|
|
|
|
126,061
|
|
Selected
Property Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Units
|
|
|
4,476
|
|
|
|
4,476
|
|
|
|
3,542
|
|
|
|
1,814
|
|
Beds
|
|
|
12,036
|
|
|
|
12,036
|
|
|
|
9,520
|
|
|
|
4,966
|
|
Occupancy
|
|
|
89
|
%
|
|
|
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.
|
20
THE
OFFERING
|
|
|
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 $214.3 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;
|
|
|
|
approximately $10.7 million to acquire
interests in our properties from certain third-party investors;
|
|
|
|
|
|
approximately $4.2 million to acquire
land on which we expect to commence building five properties
following the completion of this offering;
|
|
|
|
|
|
approximately $3.9 million to acquire the
preferred membership interest in CC-Encore; 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 StockRestrictions on
Ownership and Transfer. |
21
|
|
|
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
|
|
CCG |
|
|
|
(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 Groups
deferred compensation plan, a grant of 116,000 shares of
restricted common stock to certain of our executive officers and
certain members of our management team and an aggregate grant of
33,335 shares of restricted common stock to our independent
directors.
|
|
(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.
|
22
RISK
FACTORS
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 are scheduled to
open in August 2010 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:
|
|
|
|
|
abandonment of development opportunities after expending
significant cash and other resources to determine feasibility,
requiring us to expense costs incurred in connection with the
abandoned project;
|
|
|
|
construction costs of a project exceeding our original estimates;
|
|
|
|
failure to complete development projects on schedule or in
conformity with building plans and specifications;
|
|
|
|
lower than anticipated occupancy and rental rates at a newly
completed property, which rates may not be sufficient to make
the property profitable; and
|
|
|
|
failure to obtain, or delays in obtaining, necessary zoning,
land use, building, occupancy and other required governmental
permits and authorizations.
|
The
construction activities at our student housing properties expose
us to liabilities and risks beyond those associated with the
ownership and operation of student housing
properties.
The construction of our student housing properties involves
risks associated with construction activities, including
liability for workplace safety, such as injuries and accidents
to persons and property occurring during the construction
process. Construction activities also subject us to obligations
relating to environmental compliance, such as management of
storm water discharge and run-off, material handling,
on-site
storage of construction materials and off-site disposal of
construction materials. These risks are in addition to those
associated with owning or operating student housing properties,
and the realization of any of these risks could materially and
adversely affect us.
23
Our
development activities are subject to delays and cost overruns,
which could materially and adversely affect us.
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
or other governmental regulations, such as those 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; inclement weather; 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.
We may
not realize a return on our development activities in a timely
manner, which could materially and adversely affect
us.
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. Therefore, if any of
our development activities are subject to delays or cost
overruns, our growth may be hindered and our results of
operations and cash flows may be adversely affected. In
addition, new development activities, regardless of whether or
not they are ultimately successful, typically require
substantial time and attention from management. Furthermore,
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. Therefore, if we do not
realize a return on our development activities in a timely
manner in order to offset these costs and expenses, we could be
materially and adversely affected.
Any
delays we encounter in the completion of the three properties we
currently have scheduled to open in August 2010 could materially
and adversely affect us.
Our properties located in Conway, Arkansas, Huntsville, Texas
and Statesboro, Georgia, which upon completion, in aggregate,
will comprise approximately 11.4% of our total available beds,
are scheduled to open in August 2010 and are subject to the
various risks relating to our development activities referred to
in these risk factors, including the risks that we may encounter
delays in completion and that these properties may experience
cost overruns. In addition, in the event these properties are
not available for occupancy 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 these properties are
not available for occupancy 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.
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
24
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. Although our business
strategy contemplates access to debt financing (including our
revolving credit facility and construction debt) to finance the
construction of the five properties we expect to commence
building upon completion of this offering and to fund future
development and working capital requirements, there can be no
assurance that we will be able to obtain such financing on
favorable terms or at all.
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.
Certain
of our properties are subject to liens and claims, which could
materially and adversely affect us.
Twelve 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 $2.3 million related to these liens and
claims as of June 30, 2010. There can be no assurance that
we will not be required to pay amounts greater than our
currently recorded liability in order to obtain the release of
the liens or settle these claims. Further, we may not be able to
obtain new financing for these properties until the liens are
released.
Developing
properties in new markets may materially and adversely affect
us.
We may develop properties in markets within the United States in
which we do not currently operate. To the extent we choose to
develop properties in new markets, we will not possess the same
level of familiarity with development in these markets, as we do
in our current 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
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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 schools 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-tenants 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
26
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 25 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.
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
each of the past five fiscal years, we have experienced
significant net losses; if this trend continues, we could be
materially and adversely affected.
We have incurred significant net losses in each of the past five
fiscal years. 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 will not be incurred. If this trend
continues in the future, our financial performance, liquidity
and our ability to operate our business as a going concern could
be materially and adversely affected.
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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:
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an inability to obtain financing on attractive terms or at all;
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competition from other real estate investors;
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increased purchase prices and decreased expected yields due to
competition from other potential acquirers;
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the need to make significant and unexpected capital expenditures
to improve or renovate acquired properties;
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an inability to quickly and efficiently integrate acquisitions,
particularly any acquisitions of portfolios of properties, into
our existing operations;
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market conditions may result in higher than expected vacancy
rates and lower than expected rental rates at acquired
properties; and
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acquisition of properties subject to liabilities but without any
recourse, or with only limited recourse, to the sellers, or with
liabilities that are unknown to us, such as liabilities for
clean-up of
undisclosed environmental contamination, claims by tenants,
vendors or other persons dealing with the former owners of our
properties.
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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.
28
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, but does not include any
indebtedness we may incur in connection with any future
distributions. 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 and
for other working capital needs, or to fund the payment of
distributions to our stockholders.
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 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 incurs 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. This requirement will also restrict
our ability to arrange financing for our operations as well as
our ability to manage our capital structure.
Our indebtedness and the limitations imposed on us by our
indebtedness could have significant adverse consequences,
including the following:
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we may be unable to borrow additional funds as needed or on
favorable terms;
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we may be unable to refinance our indebtedness at maturity or
the refinancing terms may be less favorable than the terms of
the indebtedness being refinanced;
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we may be forced to dispose of one or more of our properties,
possibly on disadvantageous terms;
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we may default on our payment or other obligations as a result
of insufficient cash flow or otherwise, which may result in a
cross-default on our other obligations, and the lenders or
mortgagees may foreclose on our properties that secure their
loans and receive an assignment of rents and leases;
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to the extent that we incur unhedged floating rate debt, we will
have exposure to interest rate risk; and
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foreclosures could create taxable income without accompanying
cash proceeds, a circumstance which could hinder our ability to
meet the distribution requirements necessary to enable us to
qualify and remain qualified for taxation as a REIT.
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Compliance with the provisions of our debt agreements, including
the financial and other covenants, such as the maintenance of
specified financial ratios, could limit our flexibility, and a
29
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 Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital
ResourcesConsents 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 ventures 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 either a REIT or a
public company, 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. 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. Furthermore, our
management team has not previously operated a public company.
The various regulatory requirements applicable to public
companies will involve a significant investment of management
time, since these requirements were not previously applicable to
us as a closely held private company. Both federal laws and
regulations and the New York Stock Exchange, or
NYSE, rules impose numerous requirements relating to
a public companys corporate governance and disclosure
obligations. We may be
30
required to spend additional time addressing governance and
disclosure obligations due to our inexperience, and we will be
subject to fines and other penalties if we fail to comply in a
timely manner with these obligations. Additionally, we may need
to replace or supplement our existing management or staff in
order to maintain operations as a public company, which may
increase our costs of operations or delay implementation of our
business strategies. We may not be able to operate a REIT or a
public company as successfully or as efficiently 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 propertys 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.
31
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 NYSE rules impose
numerous requirements relating to a public companys
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 our prior history of incurring significant net
losses continues following this offering, we will be unable to
expend the funds necessary to hire additional employees and
otherwise comply with our increased disclosure and reporting
obligations. Our lack of prior experience in the operation of a
public company may reduce the likelihood that we will be able to
identify compliance and disclosure issues on a timely basis and
our failure to address these issues could materially and
adversely affect us due to fines and penalties associated with
compliance failure, an inability to utilize certain SEC forms
and offering methods to access the public equity and debt
markets quickly and the inability to otherwise enjoy the
benefits associated with our status as a public company. If we
identify any issues in
32
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. Failure to remediate compliance
issues, whether due to cost or otherwise, may result in negative
action against us, including fines, civil and criminal penalties
or delisting from the NYSE. Identification of these types of
compliance issues 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 will be costly and
challenging.
Our management will be required to deliver a report that
assesses the effectiveness of our internal control 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. A deficiency in internal controls exists when their
design or operation does not permit such prevention or detection
on a timely basis. 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 Predecessors 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
Predecessors financial statements. In the course of such
audit, it became necessary to prepare and record a number of
adjustments to correct the initial combined financial
statements. It was determined that these and other adjustments
arose from weaknesses within our internal control over financial
reporting. 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 design, implement and effectively execute and
monitor additional controls in order to comply with these
requirements and remediate any identified deficiencies. We have
implemented measures to address weaknesses in our internal
control over financial reporting and 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. If we are unable to
implement and monitor effective controls, we may be unable to
comply with the requirements of Section 404 of the
Sarbanes-Oxley
Act within the required time period.
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
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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, any of which could
materially and adversely affect us.
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:
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adverse national, regional and local economic conditions;
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rising interest rates;
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oversupply of student housing in our markets, increased
competition for student-tenants or reduction in demand for
student housing;
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inability to collect rent from student-tenants;
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vacancies at our properties or an inability to lease our
properties on favorable terms;
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inability to finance property development and acquisitions on
favorable terms;
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increased operating costs, including insurance premiums,
utilities and real estate taxes;
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the need for capital expenditures at our properties;
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costs of complying with changes in governmental regulations;
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the relative illiquidity of real estate investments; and
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civil unrest, acts of God, including earthquakes, floods,
hurricanes and other natural disasters, which may result in
uninsured losses, and acts of war or terrorism.
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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 to realize built-in gain related 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, 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. This requirement will
also restrict our ability to arrange financing for our
operations as well as our ability to manage our capital
structure.
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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
propertys 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 PropertiesRegulationEnvironmental 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 or
property damage arising from such tanks. Additionally, third
parties may be permitted by law to seek recovery from owners or
operators for personal injury or
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property damage associated with exposure to these or other
contaminants that may be present on, at or under the properties.
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.
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We may
incur significant costs complying with the Americans with
Disabilities Act, the Fair Housing 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 ADAs 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 Act, or FHA, 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, FHA 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, FHA or other legislation. If we incur substantial
costs to comply with the ADA, FHA 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
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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. or an increase in incidents of
violence on college campuses 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 propertys occupancy or to re-lease
the property at rates equal to or above historical rates, which
could materially and adversely affect us.
Incidents of violence on college campuses could pose similar
problems, with respect to the potential for a reduction of
demand for our properties if such an incident were to occur on a
college campus in one of our markets. Such an event in any of
our markets could not only adversely affect our occupancy rates,
but would also likely lead to increased operating expenses for
such properties due to increased security costs, which would
likely be necessary to reassure our student-tenants in the wake
of such an incident. Any such increase in operating expenses may
have a material adverse effect on the results of operations of
the affected property.
In addition, terrorist attacks or violent incidents could
directly impact the value of our properties through damage,
destruction or loss 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.
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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:
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The Maryland Business Combination Act that, subject to
limitations, prohibits certain business combinations between us
and an interested stockholder (defined generally as
any person who beneficially owns 10% or more of the voting power
of our voting capital stock) or an affiliate of any interested
stockholder for five years after the most recent date on which
the stockholder becomes an interested stockholder, and
thereafter imposes special appraisal rights and special
stockholder voting requirements on these combinations; and
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The Maryland Control Share Acquisition Act that provides
that our control shares (defined as shares which,
when aggregated with other shares controlled by the stockholder,
entitle the stockholder to exercise one of three increasing
ranges of voting power in electing directors) acquired in a
control share acquisition (defined as the direct or
indirect acquisition of ownership or control of control
shares) have no voting rights except to the extent
approved by our stockholders by the affirmative vote of at least
two-thirds of all the votes entitled to be cast on the matter,
excluding all interested shares.
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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
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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 directors 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.
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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 arms 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 which 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
42
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. Each of Messrs.
Rollins and Hartnett will be released from certain personal
guarantees with respect to the preferred membership interest in
CC-Encore. MXT Capital will also receive Campus Crest
Groups 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 arms 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.
43
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 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, 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. This requirement will also restrict our
ability to arrange financing for our operations as well as our
ability to manage our capital structure.
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 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 incurs 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 officers 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.
44
Following the consummation of this offering and the formation
transactions, we will have outstanding indebtedness under our
mortgage loan with Silverton Bank of approximately
$71.5 million secured by four of our properties, that will
restrict our operating partnerships ability to pay
distributions if we are in default under this mortgage loan. We
would be in default under this loan if we fail to maintain a
debt service coverage ratio of not less than 1.2 to 1.0; debt
yield percentage of not less than 9.0% and a loan-to-value ratio
of not more than 80%.
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.
45
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 and we may be
required to fund the minimum distribution necessary to qualify
for taxation as a REIT from sources that could reduce our cash
flows.
We intend to pay regular quarterly distributions to our common
stockholders and intend to pay a pro rata initial distribution
with respect to the period commencing on the completion of this
offering and ending December 31, 2010. This estimated
initial annual distribution is expected to exceed our per-share
estimated cash available for distribution to our common
stockholders for the
12-month
period ending June 30, 2011. Our ability to fund this
distribution will depend, in part, upon the receipt of cash flow
from three uncombined properties that are scheduled to open in
August 2010, from continued successful leasing of our existing
portfolio, from expected future development activity and from
fee income from development, construction and management
services. To the extent these sources are insufficient, we
intend to use our working capital or borrowings under our
revolving credit facility to fund these distributions. After
giving effect to the adjustments reflected in the table under
the caption Our Distribution Policy, we may have to
fund approximately $ million
of our estimated initial annual distribution with borrowings
under our revolving credit facility. If we need to fund future
distributions with borrowings under our revolving credit
facility or from working capital, or if we reduce our
distribution rate, our stock price may be adversely affected. In
addition, to the extent that we fund any distributions with
borrowings under our revolving credit facility or from working
capital, our cash available for investment in our business,
including for property development and acquisition purposes,
will decrease.
In addition, in order to qualify for taxation as a REIT, among
other requirements, we must make distributions to stockholders
aggregating annually 90% of our REIT taxable income, excluding
net capital gains. 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 would be
required to fund the minimum distribution necessary to qualify
for taxation as a REIT from other sources, which could include
asset sales (subject to the limitations imposed by the terms of
the tax protection agreement) or borrowings. Funding a
distribution through asset sales or borrowings could reduce our
cash flow from operations, increase our interest expense and
decrease our cash available for investment in our business. We
may also choose to meet this distribution requirement by
distributing a combination of cash and shares of our common
stock. Under recent IRS guidance, up to 90% of any such
distribution may be made in shares of our common stock. If we
choose to make a distribution consisting in part of shares of
our common stock, the holders of our common stock may be subject
to adverse tax consequences. See Federal Income Tax
Risk FactorsWe 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
below.
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
holders shares
46
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
stockholders 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 CCG. 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 representatives 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 representatives 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 representatives 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, or SARs,
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
47
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:
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actual or anticipated variations in our quarterly operating
results;
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changes in our financial performance or earnings estimates;
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increases in market interest rates;
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changes in market valuations of similar companies;
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adverse market reaction to any indebtedness we incur in the
future;
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additions or departures of key personnel;
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actions by our stockholders;
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speculation in the press or investment community;
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general market, economic and political conditions, including the
recent economic slowdown and dislocation in the global credit
markets;
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our issuance of additional shares of common stock or other
securities;
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the performance of other similar companies;
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changes in accounting principles;
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passage of legislation or other regulatory developments that
adversely affect us or our industry; and
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the potential impact of the recent economic slowdown on the
student housing industry and related budgets of colleges and
universities.
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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
48
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. As a result, the price we pay to our
existing investors for their interests in our predecessor
entities, including the interests we intend to purchase from MXT
Capital, which was not negotiated in an arms length
transaction, 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, including MXT Capital, which was not negotiated in an
arms length transaction, was determined by our executive
officers based upon a capitalization rate analysis, an internal
rate of return analysis, an assessment of the fair market value
of the properties and the consideration of other factors, such
as per bed value and the liquidation preference with respect to
certain interests. 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 representatives 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 representatives 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
June 30,
49
2010, 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.
In
addition to the underwriting discount and other fees, our
underwriters and certain associated persons will receive other
benefits from this offering.
In addition to the underwriting discount and other fees to be
received by our underwriters in connection with this offering,
we expect that affiliates of Raymond James &
Associates, Inc., Citigroup Global Markets Inc., Goldman,
Sachs & Co., KeyBanc Capital Markets Inc. and RBC
Capital Markets Corporation will be lenders under the senior
secured revolving credit facility that we expect to enter into
upon or shortly following completion of this offering. In
addition, we will purchase the preferred membership interest of
CC-Encore for $3.9 million out of the net proceeds of this
offering from RJRC, LLC, an entity owned by certain associated
persons of Raymond James & Associates, Inc., Encore
and other third-party investors. These transactions create a
potential conflict of interest because certain of the
underwriters and certain associated persons of the underwriters
have interests in the successful completion of this offering
beyond the underwriting discount that the underwriters will
receive. These interests may influence the decision regarding
the terms and circumstances under which the offering and our
formation transactions are completed. See
UnderwritingOther Relationships.
The underwriters have engaged in commercial and investment
banking transactions with our contributors in the ordinary
course of their business and may in the future engage in
commercial and investment banking transactions with us
and/or our
affiliates in the ordinary course of their business. They have
received, and expect to receive, customary compensation and
expense reimbursement for these commercial and investment
banking transactions.
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 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:
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we would not be allowed a deduction for distributions to
stockholders in computing our taxable income and we would be
subject to U.S. federal income tax at regular corporate
rates;
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we also could be subject to the U.S. federal alternative
minimum tax and possibly increased state and local
taxes; and
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unless we are entitled to relief under applicable statutory
provisions, we could not elect to be taxed as a REIT for four
taxable years following a year during which we were disqualified.
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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
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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 REIT 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 REIT 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 REIT 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:
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general market conditions;
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our current debt levels and the number of properties subject to
encumbrances;
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our current performance and the markets perception of our
growth potential;
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our cash flow and cash dividends; and
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the market price of our common stock.
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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.
51
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 TRSs 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 TRSs 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 TRSs. 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 partnerships 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
52
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
53
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.
54
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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:
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the factors discussed in this prospectus, including those set
forth under the section titled Risk Factors;
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the performance of the student housing industry in general;
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decreased occupancy or rental rates at our properties resulting
from competition or otherwise;
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the operating performance of our properties;
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the success of our development and construction activities;
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changes on the admissions or housing policies of the colleges
and universities from which we draw student-tenants;
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the availability of and our ability to attract and retain
qualified personnel;
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changes in our business and growth strategies;
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our capitalization and leverage level;
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our capital expenditures;
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the degree and nature of our competition, in terms of developing
properties, consummating acquisitions and in obtaining
student-tenants to fill our properties;
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volatility in the real estate industry, interest rates and
spreads, the debt or equity markets, the economy generally or
the local markets in which our properties are located, whether
the result of market events or otherwise;
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events or circumstances which undermine confidence in the
financial markets or otherwise have a broad impact on financial
markets, such as the sudden instability or collapse of large
financial institutions or other significant corporations,
terrorist attacks, natural or man-made disasters or threatened
or actual armed conflicts;
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the availability and terms of short-term and long-term
financing, including financing for development and construction
activities;
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the availability of attractive development
and/or
acquisition opportunities in properties that satisfy our
investment criteria, including our ability to identify and
consummate successful property developments and property
acquisitions;
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the credit quality of our student-tenants and parental
guarantors;
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changes in personnel, including the departure of key members of
our senior management, and lack of availability of qualified
personnel;
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unanticipated increases in financing and other costs, including
a rise in interest rates;
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estimates relating to our ability to make distributions to our
stockholders in the future and our expectations as to the form
of any such distributions;
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environmental costs, uncertainties and risks, especially those
related to natural disasters;
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the limitations imposed by the tax protection agreement on our
ability to sell or dispose of our properties during the tax
protection period;
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changes in governmental regulations, accounting treatment, tax
rates and similar matters;
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legislative and regulatory changes (including changes to laws
governing the taxation of REITs); and
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limitations imposed on our business and our ability to satisfy
complex rules in order for us to qualify as a REIT for
U.S. federal income tax purposes and the ability of certain
of our subsidiaries to qualify as TRSs for U.S. federal
income tax purposes, and our ability and the ability of our
subsidiaries to operate effectively within the limitations
imposed by these rules.
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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,
Managements 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.
56
USE OF
PROCEEDS
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, structuring fee 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:
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approximately $214.3 million to reduce outstanding mortgage
and construction loan indebtedness and pay associated costs, as
follows:
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$32.5 million outstanding under our mortgage loan with
Silverton Bank as it relates to two of our properties (this
loan, or the Silverton Bank Mortgage Loan, is secured by six of
our properties, has an aggregate outstanding principal amount of
approximately $104.0 million, as of June 30, 2010, an
interest rate of 6.4% per annum and a maturity date of
February 28, 2013);
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$15.6 million outstanding under our construction loan with
Wachovia Bank relating to The Grove at Mobile-Phase II
(this loan, or The Grove at Mobile-Phase II Construction Loan,
is secured by The Grove at Mobile-Phase II, has an aggregate
outstanding principal amount of approximately
$15.6 million, as of June 30, 2010, an interest rate
of LIBOR plus 300 basis points (with a 5.5% interest rate floor)
and a maturity date of October 31, 2010);
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$148.9 million outstanding under our construction loan with
Wachovia Bank as it relates to nine of our properties (this
loan, or the Wachovia Bank Nine Property Construction Loan, is
secured by nine of our properties, has an aggregate outstanding
principal amount of approximately $148.9 million, as of
June 30, 2010, an interest rate of LIBOR plus 280 basis
points (with a 6.00% interest rate floor through
October 31, 2010 with respect to approximately
$136.4 million) and a maturity date of January 31,
2011);
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$14.9 million outstanding under our construction loan with
Wachovia Bank as it relates to The Grove at San Marcos (this
loan, or the Wachovia Bank Three Property Construction Loan, is
secured by three of our properties, has an aggregate outstanding
principal amount of approximately $14.9 million, as of
June 30, 2010, an interest rate of LIBOR plus 250 basis
points (with a 5.94% interest rate floor) and a maturity date of
May 15, 2011); and
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$2.4 million to pay costs associated with the termination
of interest rate swaps and hedges relating to the repayment of
this debt (based on the settlement value as of June 30,
2010);
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approximately $4.0 million to repay indebtedness owed to
Capital Bank, which has an interest rate of prime plus 1.0% and
a maturity date of October 5, 2010;
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approximately $6.0 million to repay unsecured indebtedness
owed by us to RHR, LLC, an entity owned by MXT Capital and the
Ricker Group, which has an interest rate of 12% and a maturity
date of April 30, 2011; 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;
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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;
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approximately $28.6 million to acquire interests in our
properties from HSRE and satisfy associated obligations to HSRE;
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approximately $26.7 million to acquire interests in our
properties from the Ricker Group;
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approximately $10.7 million to acquire interests in our
properties from certain third-party investors;
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approximately $4.2 million to acquire land on which we
expect to commence building five properties following the
completion of this offering;
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approximately $3.9 million to acquire the preferred
membership interest in CC-Encore; and
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approximately $ million for
working capital and general corporate purposes.
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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.
58
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.
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Sources
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Uses
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(in millions)
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(in millions)
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Gross offering proceeds
(1)
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$
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Underwriting discount
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$
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Structuring fee
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Other fees and expenses
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Reduction of outstanding
mortgage and
construction loan
indebtedness and
payment of associated costs
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214.3
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Repayment of unsecured indebtedness
(Capital Bank and RHR,
LLC)
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10.0
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Payment to MXT Capital for repayment of certain indebtedness
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4.5
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Payment to HSRE for
interests in our properties
and associated obligations
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28.6
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Payment to the Ricker Group
for interests in our
properties
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26.7
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Payment to certain third-party
investors for interests in our
properties
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10.7
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Acquisition of land
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4.2
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Acquisition of CC-Encore preferred membership interest
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3.9
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Working capital
(2)
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Total Sources
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$
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Total Uses
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$
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(1) |
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This amount
assumes shares
of common stock are sold in this offering and will increase or
decrease depending upon whether such shares are sold above or
below $ per share (the mid-point
of the price range set forth on the cover page of this
prospectus).
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(2) |
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Working capital needs will be met
by utilizing net proceeds from this offering and funds available
under our revolving credit facility, which we expect to obtain
upon completion of this offering.
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59
OUR
DISTRIBUTION POLICY
We intend to pay regular quarterly distributions to our common
stockholders. We intend to pay a pro rata initial distribution
with respect to the period commencing on the completion of this
offering and ending December 31, 2010, based on
$
per share for a full quarter. On an annualized basis, this would
be $
per share, or an initial annual distribution rate of
approximately %
based on an assumed initial public offering price of
$
per share (the mid-point of the price range set forth on the
cover page of this prospectus). This estimated initial annual
distribution is expected to exceed our per-share estimated cash
available for distribution to our common stockholders for the
12-month
period ending June 30, 2011. Our ability to fund this
distribution will depend, in part, upon the receipt of cash flow
from three uncombined properties that are scheduled to open in
August 2010, from continued successful leasing of our existing
portfolio, from expected future development activity and from
fee income from development, construction and management
services. To the extent these sources are insufficient, we
intend to use our working capital or borrowings under our
revolving credit facility to fund these distributions. After
giving effect to the adjustments set forth below, we may have to
fund
$ million
of our estimated initial annual distributions with borrowings
under our revolving credit facility. This estimate is based on
our historical operating results, adjusted as described below,
and does not take into account the five properties that we
expect to commence building upon completion of this offering,
with completion targeted for the 2011-2012 academic year, nor
does it take into account any unanticipated expenditures we may
have to make or any debt we may have to incur.
Our estimate of cash available for distribution does not reflect:
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fee income from development and construction services that we
may provide to future uncombined joint venture properties (see
Managements Discussion and Analysis of Financial
Condition and Results of OperationsFactors Expected to
Affect Our Operating ResultsDevelopment and Construction
Services);
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cash to be used for capital expenditures, such as development
and construction activities and property acquisitions, other
than an estimate of recurring capital expenditures at our
combined properties and our uncombined joint venture properties;
or
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cash estimated to be used for financing activities, other than
scheduled amortization payments on mortgage indebtedness that
will be outstanding upon consummation of this offering.
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During the 12 months ending June 30, 2011, we expect to
incur capital expenditures in connection with the development
and construction of five student housing properties, with
completion and occupancy targeted for the
2011-12
academic year, which we intend to finance with borrowings under
our revolving credit facility and new construction indebtedness.
As a result, we do not expect that these development activities
will have a meaningful effect on our estimate of cash available
for distribution for the 12 months ending June 30,
2011.
Although we currently have no additional commitments with
respect to investing or financing activities, we may choose to
undertake additional investing
and/or
financing activities in the future, which may have a material
effect on our estimate of cash available for distribution.
Because we have made the assumptions set forth above in
estimating cash available for distribution, we do not intend
this estimate to be a projection or forecast of our actual
results of operations or our liquidity, and have estimated cash
available for distribution for the sole purpose of determining
our initial annual distribution amount and corresponding payout
ratio. Our estimate of cash available for distribution should
not be considered as an alternative to cash flow
60
from operating activities (computed in accordance with GAAP) or
as an indicator of our liquidity or our ability to pay dividends
or make distributions. In addition, the methodology upon which
we made the adjustments described below is not necessarily
intended to be a basis for determining future distributions.
We intend to maintain our initial distribution rate for the
12-month period following completion of this offering unless
actual results of operations, economic conditions or other
factors differ materially from the assumptions used in our
estimate. Distributions made by us will be authorized and
determined by our board of directors out of funds legally
available therefor and will be dependent upon a number of
factors, including restrictions under applicable law or
contained in agreements relating to our indebtedness or any
future preferred stock. We believe that our estimate of cash
available for distribution constitutes a reasonable basis for
setting the initial distribution; however, no assurance can be
given that the estimate will prove accurate, and actual
distributions may therefore be significantly different from the
expected distributions. We do not intend to reduce the expected
distribution per share if the underwriters overallotment
option is exercised; however, this could require us to pay
distributions from net offering proceeds.
We anticipate that, at least initially, our distributions will
exceed our then current and then accumulated earnings and
profits as determined for U.S. federal income tax purposes
due to non-cash expenses, primarily depreciation and
amortization charges that we expect to incur. Therefore, a
portion of these distributions will represent a return of
capital for federal income tax purposes. Distributions in excess
of our current and accumulated earnings and profits and not
treated by us as a dividend will not be taxable to a taxable
U.S. stockholder under current federal income tax law to
the extent those distributions do not exceed the
stockholders adjusted tax basis in such common stock, but
rather will reduce the adjusted basis of the common stock.
Therefore, the gain (or loss) recognized on the sale of that
common stock or upon our liquidation will be increased (or
decreased) accordingly. To the extent those distributions exceed
a taxable U.S. stockholders adjusted tax basis in
such common stock, they generally will be treated as a capital
gain realized from the taxable disposition of those shares. We
expect that approximately % of our
estimated initial annual distribution will represent a return of
capital for federal income tax purposes. The percentage of our
stockholder distributions that exceeds our current and
accumulated earnings and profits may vary substantially from
year to year. For a more complete discussion of the tax
treatment of distributions to holders of our common stock, see
Federal Income Tax Considerations.
We cannot assure you that our estimated distributions will be
made at all, or at the rate estimated below, or if made, that
such distributions will be sustained. Any distributions we pay
in the future will depend upon our actual results of operations,
economic conditions and other factors that could differ
materially from our current expectations. Our actual results of
operations will be affected by a number of factors, including
the revenue we receive from our properties (including properties
scheduled to open in August 2010) and our development,
construction and management services, our operating expenses and
interest expense, the ability of our student-tenants to meet
their obligations and unanticipated expenditures. For more
information regarding risk factors that could materially
adversely affect our actual results of operations, see
Risk Factors.
If our properties do not generate sufficient cash flow with
which to pay our estimated distributions, we will be required
either to fund distributions from working capital or borrowings
under our revolving credit facility or to reduce our
distributions. Our revolving credit facility will contain
covenants that restrict our ability to pay distributions or
other amounts to our stockholders unless certain financial tests
are satisfied and also will contain certain provisions
restricting or limiting our ability to draw funds under the
facility.
61
Federal income tax law requires that a REIT distribute annually
at least 90% of its REIT taxable income determined without
regard to the dividends paid deduction and excluding net capital
gains, and that it pay tax at regular corporate rates to the
extent that it annually distributes less than 100% of its REIT
taxable income, including capital gains. For more information,
please see Federal Income Tax Considerations. We
anticipate that our estimated cash available for distribution
and our estimated initial annual distribution will exceed the
annual distribution requirements applicable to REITs. However,
if our cash available for distribution does not exceed such
requirements, we may be required to pay distributions in excess
of cash available for distribution. In such a case, we would be
required to fund the minimum required distribution from other
sources, which could include asset sales (subject to the
limitations imposed by the terms of the tax protection
agreement) or borrowings. Funding a distribution through asset
sales or borrowings could reduce our cash flow from operations,
increase our interest expense and decrease our cash available
for investment in our business. We may also choose to meet such
distribution requirement by distributing a combination of cash
and shares of our common stock, which may subject the holders of
our common stock to adverse tax consequences. See Risk
FactorsRisks Related to this OfferingWe may not be
able to make an initial distribution or maintain any initial, or
subsequent, distribution rate and we may be required to fund the
minimum distribution necessary to qualify for taxation as a REIT
from sources that could reduce our cash flows.
The following table describes our pro forma net loss for the
12 months ended June 30, 2010, and the adjustments we
have made thereto in order to estimate our initial cash
available for distribution for the 12 months ending
June 30, 2011 (amounts in thousands except share data, per
share data and percentages):
|
|
|
|
|
|
|
Pro forma net loss before noncontrolling interest for the year
ended December 31, 2009
|
|
$
|
|
|
Less:
|
|
Pro forma net loss before noncontrolling interest for the six
months ended June 30, 2009
|
|
|
|
|
Add:
|
|
Pro forma net loss before noncontrolling interest for the six
months ended June 30, 2010
|
|
|
|
|
Pro forma net loss for the 12 months ended June 30, 2010
|
|
|
|
|
Add:
|
|
Depreciation and amortization for the 12 months ended
June 30, 2010
|
|
|
|
(1)
|
Add:
|
|
Increase in net income before depreciation from existing
development and construction services contracts for the 12
months ending June 30, 2011 compared to the 12 months ended
June 30, 2010
|
|
|
|
(2)
|
Add:
|
|
Increase in revenue from existing management services contracts
for the 12 months ending June 30, 2011 compared to the 12
months ended June 30, 2010
|
|
|
|
(3)
|
Add:
|
|
Increase in revenue from the anticipated increase in occupancy
for the 12 months ending June 30, 2011 compared to the 12
months ended June 30, 2010
|
|
|
|
(4)
|
Add:
|
|
Increase in revenue from the anticipated increase in average
rental rate for the 12 months ending June 30, 2011 compared
to the 12 months ended June 30, 2010
|
|
|
|
(5)
|
Add:
|
|
Increase in net income before depreciation from a full
years operation of two combined properties that opened in
2009
|
|
|
|
(6)
|
Less:
|
|
Decrease in net income before depreciation from a full
years operation of three uncombined joint venture
properties that opened in 2009
|
|
|
|
(7)
|
Add:
|
|
Increase in net income before depreciation from initial
operations of three uncombined joint venture properties
scheduled to open in August 2010 for the
2010-2011
academic year
|
|
|
|
(8)
|
Add:
|
|
Decrease in expense from the non-recurring charge related to the
write-off of pre-development costs that was recorded in
September 2009
|
|
|
|
|
|
|
|
|
|
|
|
Estimated cash flows from operating activities for the 12
months ending June 30, 2011
|
|
|
|
(9)
|
62
|
|
|
|
|
|
|
Estimated cash flows used in investing activities:
|
|
|
|
|
Less:
|
|
Annual provision for recurring capital expenditures
combined properties
|
|
|
|
(10)
|
Less:
|
|
Pro rata share of annual provision for recurring capital
expenditures uncombined joint venture properties
|
|
|
|
(11)
|
|
|
|
|
|
|
|
Total estimated cash flow used in investing activities
|
|
|
|
|
Estimated cash flows used in financing activities:
|
|
|
|
|
Less:
|
|
Scheduled loan principal repayments combined
properties
|
|
|
|
(12)
|
Less:
|
|
Pro rata share of scheduled loan principal
repayments uncombined joint venture properties
|
|
|
|
(13)
|
|
|
|
|
|
|
|
Total estimated cash flows used in financing activities
|
|
|
|
|
Total estimated cash available for distribution for the
12 months ending June 30, 2011
|
|
$
|
|
(14)
|
|
|
|
|
|
Total estimated initial annual distribution to stockholders
and holders of OP units
|
|
$
|
|
(15)
|
Estimated annual distribution per share/OP unit
|
|
$
|
|
|
Payout ratio based on estimated cash available for distribution
|
|
|
|
% (16)
|
Cash from our revolving credit facility utilized to fund the
excess of estimated initial annual distribution over estimated
cash available for distribution for the 12 months ending
June 30, 2011
|
|
$
|
|
|
Estimated cash available for distribution to:
|
|
|
|
|
OP units
|
|
$
|
|
|
Shares of common stock
|
|
$
|
|
|
|
|
|
(1) |
|
Includes $ of
depreciation and amortization from our combined properties and
$ of our pro rata
share of depreciation and amortization from our uncombined joint
venture properties. |
|
|
|
(2) |
|
The following table reflects the economic impact on the
12 months ending June 30, 2011 resulting from
anticipated changes in contractual development and construction
services revenue and expenses, as compared to the 12 months
ended June 30, 2010. Revenue and expenses from development
and construction services for the 12 months ending
June 30, 2011 relate primarily to the completion of the
three joint venture properties that are scheduled to commence
operations for the 2010-2011 academic year. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six mos. Ended
|
|
|
Six mos. Ended
|
|
|
12 mos. Ended
|
|
|
12 mos. Ending
|
|
|
|
|
|
|
12/31/09
|
|
|
6/30/09
|
|
|
6/30/10
|
|
|
6/30/10
|
|
|
6/30/11
|
|
|
Increase/
|
|
|
|
(Pro Forma)
|
|
|
(Pro Forma)
|
|
|
(Pro Forma)
|
|
|
(Pro Forma)
|
|
|
(Existing Contracts)
|
|
|
(Decrease)
|
|
|
Revenues from External Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses (External)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income before Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
Adjustment reflects the net increase in contractual management
fee revenues for the 12 months ending June 30, 2011
compared to the same period ended June 30, 2010 from
contracts in place during the 12 months ended June 30,
2010. The increase in revenue from management services for the
12 months ending June 30, 2011 relates primarily to
the impact of a full year of management services revenue for the
three joint venture properties that opened in 2009 and the
initiation of management services for the three joint venture
properties that are scheduled to commence operations for the
2010-2011 academic year. |
63
|
|
|
(4) |
|
The following table reflects the economic impact on the
12 months ending June 30, 2011 resulting from
anticipated changes in our economic occupancy based on our
executed lease status for our operating properties as
of ,
2010, as compared to the 12 months ended June 30, 2010
as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic
|
|
|
|
|
|
Executed Lease
|
|
|
Pro Forma
|
|
|
Income before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy for
|
|
|
Economic
|
|
|
Status for the
|
|
|
Occupancy for
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
Total Beds
|
|
|
12 mos. Ended
|
|
|
Occupancy
|
|
|
2010-2011 AY
|
|
|
12 mos. Ending
|
|
|
for the 12 mos.
|
|
|
|
|
|
|
|
|
|
|
|
at Property
|
|
|
6/30/10(a)
|
|
|
as of
|
|
|
as
of (b)
|
|
|
6/30/11(c)
|
|
|
Ending
6/30/11(d)
|
|
|
|
|
|
|
|
|
Wholly-Owned Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Asheville, NC
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Carrollton, GA
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Las Cruces, NM
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Milledgeville, GA
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Abilene, TX
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Ellensburg, WA
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Greeley, CO
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Jacksonville, AL
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Mobile, AL Phase I
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Mobile, AL Phase II
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Nacogdoches, TX
|
|
|
522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Cheney, WA
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Jonesboro, AR
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Lubbock, TX
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Stephenville, TX
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Troy, AL
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
Waco, TX
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Wichita, KS
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Wichita Falls, TX
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Murfreesboro, TN
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
San Marcos, TX
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total
|
|
|
10,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Venture Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Lawrence, KS
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Moscow, ID
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
San Angelo, TX
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total
|
|
|
1,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Economic occupancy for the historical 12 months ended
June 30, 2010 reflects the average occupancy during that
period, which generally includes one month of occupancy results
from the
2008-2009
academic year (i.e., July 2009) and 11 months
of occupancy results from the
2009-2010
academic year (i.e., August 2009 through June 2010). |
|
|
|
(b) |
|
Executed lease status for the
2010-2011
academic year is based on the number of executed leases in hand
for the
2010-2011
academic year as
of ,
2010. |
|
|
|
(c) |
|
Economic occupancy for the 12 months ending June 30,
2011 is based on one month (i.e., July 2010) of current
economic occupancy (as of ,
2010) and 11 months (i.e., August 2010 through
June 2011) of economic occupancy based on executed leases in
hand for the 2010-2011 academic year as
of ,
2010. |
|
|
|
(d) |
|
Impact on net income before depreciation for the 12 months
ending June 30, 2011 based on increase in occupancy
assuming average monthly revenue per occupied bed for the
12 months ending June 30, 2011 is equal to average
monthly revenue per occupied bed for the 12 months ended
June 30, 2010. |
|
|
|
(5) |
|
The following table reflects the economic impact on the
12 months ending June 30, 2011 resulting from
anticipated changes in our average revenue per leased bed based
on our |
64
|
|
|
|
|
executed lease status for our operating properties as
of , 2010, as compared to the
12 months ended June 30, 2010 as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
Impact on Net
|
|
|
|
|
|
Monthly Revenue
|
|
|
Monthly Revenue
|
|
|
Total Beds
|
|
|
Average
|
|
|
Monthly Revenue
|
|
|
Income before
|
|
|
|
|
|
per Occupied Bed
|
|
|
per Occupied Bed
|
|
|
Leased for
|
|
|
Monthly Revenue
|
|
|
per Leased Bed
|
|
|
Depreciation
|
|
|
|
|
|
for the 12 mos.
|
|
|
For the Month
|
|
|
the 2010-2011 AY
|
|
|
per Leased Bed
|
|
|
for the 12 mos.
|
|
|
for the 12 mos.
|
|
|
|
|
|
Ended
6/30/10(a)
|
|
|
Ended
|
|
|
as
of (b)
|
|
|
for the 2010-2011
AY(b)
|
|
|
Ending
6/30/11(c)
|
|
|
Ending
6/30/11(d)
|
|
|
Wholly-Owned Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Asheville, NC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Carrollton, GA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Las Cruces, NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Milledgeville, GA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Abilene, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Ellensburg, WA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Greeley, CO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Jacksonville, AL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Mobile, AL Phase I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Mobile, AL Phase II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Nacogdoches, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Cheney, WA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Jonesboro, AR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Lubbock, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Stephenville, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Troy, AL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
Waco, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Wichita, KS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Wichita Falls, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Murfreesboro, TN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
San Marcos, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Venture Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Lawrence, KS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Moscow, ID
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
San Angelo, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Average monthly revenue per occupied bed for the historical
12 months ended June 30, 2010 generally includes one
month of results from the
2008-2009
academic year (i.e., July 2009) and 11 months
of results from the
2009-2010
academic year (i.e., August 2009 through June 2010). |
|
|
|
(b) |
|
Total beds leased and average monthly revenue per leased bed for
the
2010-2011
academic year is based on executed leases in hand for the
2010-2011
academic year as
of ,
2010. |
|
|
|
(c) |
|
Estimated average monthly revenue per leased bed for the
12 months ending June 30, 2011 is based on one month
(i.e., July 2010) of current average monthly revenue per
occupied bed (as of the month
ended ,
2010) and 11 months (i.e., August 2010 through
June 2011) of estimated average monthly revenue per leased bed
based on executed leases in hand as
of ,
2010. |
|
|
|
(d) |
|
Impact on net income before depreciation is based on the
difference between the estimated average monthly revenue per
leased bed for the 12 months ending June 30, 2011 and
the historical average monthly revenue per occupied bed for the
12 months ended June 30, 2010, multiplied by the
number of executed leases in hand as
of ,
2010, multiplied by 12 months. |
|
|
|
(6) |
|
The following table reflects the economic impact on the
12 months ending June 30, 2011 resulting from a full
years operation of two combined properties that opened in
2009 (The Grove at Murfreesboro and The Grove at
San Marcos). |
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
|
|
|
|
|
|
Annualized
|
|
|
Impact on Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
|
|
|
Operating
|
|
|
Operating
|
|
|
Interest
|
|
|
Interest
|
|
|
Income before
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Expenses
|
|
|
Expenses
|
|
|
Expense
|
|
|
Expense
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
for the 11 mos.
|
|
|
for the 12 mos.
|
|
|
for the 11 mos.
|
|
|
for the 12 mos.
|
|
|
for the 11 mos.
|
|
|
for the 12 mos.
|
|
|
for the 12 mos.
|
|
|
|
|
|
|
|
|
|
|
|
Ended 6/30/10
|
|
|
Ending
6/30/11(a)
|
|
|
Ended 6/30/10
|
|
|
Ending
6/30/11(a)
|
|
|
Ended 6/30/10
|
|
|
Ending
6/30/11(a)
|
|
|
Ending
6/30/11(b)
|
|
|
|
|
|
|
|
|
Wholly-Owned Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Murfreesboro, TN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
San Marcos, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Based on average monthly revenue, operating expenses or interest
expense for the 11 months ended June 30, 2010
multiplied by 12. |
|
|
|
(b) |
|
Represents the amount by which net income before depreciation
(i.e., revenue less operating expenses less interest
expense) for the 12 months ending June 30, 2011
exceeds net income before depreciation for the 11 months
ended June 30, 2010. |
|
|
|
(7) |
|
The following table reflects the economic impact on the
12 months ending June 30, 2011 resulting from a full
years operation of three joint venture properties that
opened in 2009 (The Grove at Lawrence, The Grove at Moscow and
The Grove at San Angelo). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
|
|
|
|
|
|
Annualized
|
|
|
Impact on Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
|
|
|
Operating
|
|
|
Operating
|
|
|
Interest
|
|
|
Interest
|
|
|
Income before
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Expenses
|
|
|
Expenses
|
|
|
Expense
|
|
|
Expense
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
for the 11 mos.
|
|
|
for the 12 mos.
|
|
|
for the 11 mos.
|
|
|
for the 12 mos.
|
|
|
for the 11 mos.
|
|
|
for the 12 mos.
|
|
|
for the 12 mos.
|
|
|
|
|
|
|
|
|
|
|
|
Ended 6/30/10
|
|
|
Ending
6/30/11(a)
|
|
|
Ended 6/30/10
|
|
|
Ending
6/30/11(a)
|
|
|
Ended 6/30/11
|
|
|
Ending
6/30/11(a)
|
|
|
Ending
6/30/11(b)
|
|
|
|
|
|
|
|
|
Joint Venture Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Lawrence,
KS(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Moscow, ID
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
San Angelo, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Based on average monthly revenue, operating expenses or interest
expense for the 11 months ended June 30, 2010
multiplied by 12. |
|
|
|
(b) |
|
Represents the amount by which net income before depreciation
(i.e., revenue less operating expenses less interest
expense) for the 12 months ending June 30, 2011
exceeds net income before depreciation for the 11 months
ended June 30, 2010, as adjusted to reflect equity method
of accounting assuming 49.9% ownership of each property. |
|
|
|
(c) |
|
The Grove at Lawrence opened in 2009 with 300 available beds
(out of 500 total planned beds); annualized operating expenses
for the 12 months ending June 30, 2011 for this
property based on average monthly operating expenses per
available bed for the eight months ending June 30, 2010
(assuming 300 available beds) multiplied by 12 months and
multiplied by 500 available beds for the 12 months ending
June 30, 2011. |
|
|
|
(8) |
|
Represents expected net income before depreciation from leasing
activities related to the three uncombined properties scheduled
to open in August 2010 for the 11 month period from
expected opening in August 2010 through June 2011, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Beds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on Net
|
|
|
|
|
|
|
|
|
Leased
|
|
|
Average Monthly
|
|
|
Contribution to
|
|
|
Average Monthly
|
|
|
Estimated
|
|
|
Estimated Interest
|
|
|
Income before
|
|
|
|
|
|
|
|
|
for the
|
|
|
Revenue per
|
|
|
Revenue for the
|
|
|
Historical Portfolio
|
|
|
Expenses for the
|
|
|
Expense for the
|
|
|
Depreciation
|
|
|
|
|
|
Total Beds
|
|
|
2010-2011 AY
|
|
|
Leased Bed
|
|
|
11 mos. Ending
|
|
|
Operating Expense
|
|
|
11 mos. Ending
|
|
|
11 mos. Ending
|
|
|
for the 12 mos.
|
|
|
|
|
|
at Property
|
|
|
as
of (a)
|
|
|
for the 2010-2011
AY(b)
|
|
|
6/30/11(c)
|
|
|
Per
Bed(d)
|
|
|
6/30/11(c)
|
|
|
6/30/11(e)
|
|
|
Ending
6/30/11(f)
|
|
|
Properties Scheduled to Open in August 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Conway, AR
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Huntsville, TX
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Statesboro, GA
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects beds leased as evidenced by executed leases as
of , 2010. |
|
(b) |
|
Average monthly rent for leased beds for the
2010-2011
academic year commencing in August 2010. |
66
|
|
|
(c) |
|
Calculated as Average Monthly Revenue Per Leased Bed or Average
Monthly Historical Portfolio Operating Expense Per Bed
multiplied by 11 months (August 2010 through June
2011) multiplied by the number of signed leases. |
|
|
|
(d) |
|
Represents the average monthly operating cost per bed at our
operating properties for the 12 months ended June 30,
2010. |
|
|
|
(e) |
|
Represents estimated interest expense on unconsolidated joint
venture debt for the 12 months ending June 30, 2011. |
|
|
|
(f) |
|
Impact on net income before depreciation for the 12 months
ending June 30, 2011 based on equity method of accounting
assuming 49.9% ownership of each property. |
|
|
|
(9) |
|
Write-off of pre-development costs represents a non-cash
impairment charge incurred during the 12 months ended
June 30, 2010 related to the write-off of capitalized
expenditures for projects that were commenced but not completed
due to unforeseen events, including significant limitations in
the availability of debt financing to fund construction costs.
We expect, subject to completion of this offering, to commence
building five properties with completion targeted for the
2011-12
academic year, and we anticipate obtaining adequate financing to
fund our developments over the next 12 months through our
revolving credit facility and construction debt. Therefore, we
do not anticipate having to write-off significant
pre-development expenditures for the 12 months ending
June 30, 2011 as a result of the unavailability of
financing. |
|
|
|
(10) |
|
Represents estimated recurring capital expenditures for our
combined properties for the 12 months ending June 30,
2011 based on estimated recurring capital expenditures of $35.31
per bed multiplied by 10,528 total beds at our combined
properties as
of ,
2010. Recurring capital expenditures were estimated based on a
weighted average of capital expenditures per bed for the three
fiscal years ending December 31, 2009. For more information
regarding our recurring capital expenditures, please see
Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital
ResourcesRecurring Capital Expenditures. |
|
|
|
(11) |
|
Represents our pro rata share of estimated recurring capital
expenditures for our joint venture properties for the
12 months ending June 30, 2011 based on estimated
recurring capital expenditures of $35.31 per bed multiplied by
1,508 total beds at our joint venture properties as
of ,
2010 (excluding beds at our three joint venture properties that
are scheduled to open in August 2010, which we anticipate will
not require material recurring capital expenditures for the
12 months ending June 30, 2011). Recurring capital
expenditures were estimated based on a weighted average of
capital expenditures per bed for the three fiscal years ending
December 31, 2009. For more information regarding our
recurring capital expenditures, please see
Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital
ResourcesRecurring Capital Expenditures. |
|
|
|
(12) |
|
Represents required mortgage loan payments for combined
properties after the repayment of certain indebtedness with the
net proceeds from this offering. |
|
|
|
(13) |
|
Represents our pro rata share of required mortgage loan payments
for our uncombined joint venture properties. |
|
|
|
(14) |
|
Reflects estimated operating cash flows less cash flows used in
financing and investing activities. |
|
|
|
(15) |
|
Estimated initial annual distribution calculated by multiplying
the assumed issued shares of and OP
units of by the assumed initial
distribution amount per share of $ . |
|
|
|
(16) |
|
Payout ratio calculated by dividing the estimated initial annual
distribution to stockholders and holders of OP units by the
estimated annual cash available for distribution. |
67
CAPITALIZATION
The following table sets forth the capitalization of our
Predecessor as of June 30, 2010 and our capitalization on a
pro forma basis as of June 30, 2010, adjusted to reflect
our formation transactions, this offering and the use of the net
proceeds from this offering as described in Use of
Proceeds. You should read this table in conjunction with
Use of Proceeds, Selected Historical and Pro
Forma Financial Information, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
pro forma financial statements and the notes to those financial
statements appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Pro Forma
|
|
|
|
as of
|
|
|
as of
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2010
(1)(2)
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
Mortgage and construction loans
|
|
$
|
329,374
|
|
|
$
|
132,304
|
|
Lines of credit and other debt
|
|
|
10,018
|
|
|
|
|
|
Related party loan
(3)
|
|
|
7,671
|
|
|
|
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
799
|
|
|
|
(54,175
|
)
|
Common Stock, $.01 par value, 90,000,000 shares
authorized, shares
issued and outstanding on a pro forma basis
|
|
|
|
|
|
|
223
|
|
Additional paid in capital
|
|
|
|
|
|
|
266,797
|
|
Owners equity (deficit)
|
|
|
(54,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owners equity (deficit)
|
|
|
(53,446
|
)
|
|
|
212,845
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
293,617
|
|
|
$
|
345,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Each $1.00 increase (decrease) in
the assumed public offering price of
$ per share, the mid-point of the
price range set forth on the cover page of this prospectus,
would increase (decrease) each of additional paid in capital,
owners equity (deficit), total owners equity
(deficit) and total capitalization by approximately
$ , assuming that the number of
shares offered by us, as set forth on the cover page of this
prospectus, remains the same, and after deducting the estimated
underwriting discount and other estimated offering expenses
payable by us. The as adjusted information discussed above is
illustrative only and will adjust based on the actual initial
public offering price and other terms of this offering
determined at pricing. Does not include (i) any shares of
common stock that may be issued pursuant to the
underwriters overallotment option to purchase up to an
additional shares
of common stock or (ii) OP units issued as part of our
formation transactions. Includes 249,335 shares of
restricted common stock granted to our independent directors,
certain of our executive officers and certain members of our
management team under our 2010 Incentive Award Plan.
|
|
(2) |
|
Assumes shares
are sold in this offering at $ per
share (the mid-point of the price range set forth on the cover
of this prospectus).
|
|
(3) |
|
Represents the proceeds from sale
of The Grove at Milledgeville to HSRE, sale of 99% of our
interest in HSRE I and prepaid management fees. These
transactions are accounted for as financing arrangements.
|
68
DILUTION
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 June 30, 2010, 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, structuring fee 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 June 30, 2010 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share based on the
mid-point of the price range set forth on the cover page of this
prospectus
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Net tangible book value per share before our formation
transactions and this offering
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in pro forma net tangible book value per share
attributable to our formation transactions but before this
offering
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in pro forma net tangible book value per share
attributable to this offering
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in pro forma net tangible book value per share
attributable to our formation transactions and this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after our formation
transactions and this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution in pro forma net tangible book value per share to
purchasers of common stock in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The calculations above assume that
the initial public offering price of our common stock is at the
mid-point of the price range set forth on the cover page of this
prospectus.
|
|
(2) |
|
Net tangible book value per share
before our formation transactions and this offering is
determined by dividing the net book value of our tangible assets
by the number of shares of common stock held by continuing
investors.
|
|
(3) |
|
Decrease in net tangible book value
per share attributable to our formation transactions, but before
this offering, is determined by dividing the difference between
the pro forma net tangible book value, excluding net offering
proceeds, and our net tangible book value before our formation
transactions and this offering by the number of shares of common
stock to be issued in this offering.
|
|
(4) |
|
Represents increase in net tangible
book value per share attributable to this offering, adjusted to
spread the negative net tangible book value existing before this
offering among purchasers of common stock in this offering. This
amount is calculated after deducting the underwriting discount
and estimated expenses of this offering payable by us.
|
69
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.
70
SELECTED
HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
You should read the following selected historical and pro forma
financial information in conjunction with
Managements 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 six months ended June 30, 2010 and 2009
and the selected historical combined balance sheet information
as of June 30, 2010 have been derived from the unaudited
historical combined financial statements of our Predecessor,
included elsewhere in this prospectus. The unaudited historical
combined financial statements have been prepared on the same
basis as our audited historical combined financial statements
and in the opinion of our management, reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation of this information. The results for any interim
period are not necessarily indicative of the results that may be
expected for a full year. 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 as of
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 statements of operations for the six months ended
June 30, 2010 and for the year ended December 31, 2009
and the selected pro forma condensed consolidated balance sheet
information as of June 30, 2010 have been derived from our
unaudited pro forma condensed consolidated financial statements,
included elsewhere in this prospectus.
The selected pro forma condensed consolidated statements of
operations and balance sheet information set forth below has
been adjusted to reflect 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 unaudited pro
forma condensed consolidated financial information for the year
ended December 31, 2009 and as of and for the six months
ended June 30, 2010 is presented as if this offering, the
use of net proceeds therefrom and our formation transactions all
had occurred as of the last day of the period presented for the
purposes of the unaudited pro forma condensed consolidated
balance sheet information and on the first day of the period
presented for the purposes of the unaudited pro forma condensed
consolidated statements of operations.
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.
71
Statement
of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Campus Crest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities, Inc.
|
|
|
Historical Campus Crest Communities Predecessor
|
|
|
|
Six Months
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
December 31,
|
|
|
June 30,
|
|
|
Year Ended December 31,
|
|
|
|
June 30, 2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing
|
|
$
|
25,986
|
|
|
$
|
45,021
|
|
|
$
|
24,443
|
|
|
$
|
21,219
|
|
|
$
|
43,708
|
|
|
$
|
30,813
|
|
|
$
|
15,598
|
|
|
$
|
5,335
|
|
|
$
|
1,034
|
|
Student housing services
|
|
|
1,486
|
|
|
|
2,289
|
|
|
|
1,426
|
|
|
|
1,011
|
|
|
|
2,265
|
|
|
|
798
|
|
|
|
110
|
|
|
|
115
|
|
|
|
156
|
|
Development, construction and management services
|
|
|
17,311
|
|
|
|
24,540
|
|
|
|
30,738
|
|
|
|
37,258
|
|
|
|
60,711
|
|
|
|
2,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
44,783
|
|
|
|
71,850
|
|
|
|
56,607
|
|
|
|
59,488
|
|
|
|
106,684
|
|
|
|
34,116
|
|
|
|
15,708
|
|
|
|
5,450
|
|
|
|
1,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing operations
|
|
|
14,229
|
|
|
|
23,707
|
|
|
|
13,455
|
|
|
|
11,416
|
|
|
|
23,155
|
|
|
|
14,890
|
|
|
|
7,470
|
|
|
|
2,149
|
|
|
|
528
|
|
Development, construction and management services
|
|
|
16,140
|
|
|
|
24,847
|
|
|
|
28,644
|
|
|
|
35,693
|
|
|
|
60,200
|
|
|
|
2,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
3,445
|
|
|
|
6,450
|
|
|
|
2,618
|
|
|
|
2,454
|
|
|
|
5,617
|
|
|
|
5,422
|
|
|
|
3,467
|
|
|
|
1,747
|
|
|
|
459
|
|
Ground leases
|
|
|
94
|
|
|
|
264
|
|
|
|
94
|
|
|
|
96
|
|
|
|
264
|
|
|
|
224
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Write-off of pre-development costs
|
|
|
|
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
1,211
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,792
|
|
|
|
18,598
|
|
|
|
9,429
|
|
|
|
9,115
|
|
|
|
18,371
|
|
|
|
13,573
|
|
|
|
5,765
|
|
|
|
1,708
|
|
|
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
43,700
|
|
|
|
75,077
|
|
|
|
54,240
|
|
|
|
58,774
|
|
|
|
108,818
|
|
|
|
36,459
|
|
|
|
16,742
|
|
|
|
5,604
|
|
|
|
1,516
|
|
Equity in loss of uncombined entities
|
|
|
(1,112
|
)
|
|
|
(565
|
)
|
|
|
(194
|
)
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(29
|
)
|
|
|
(3,792
|
)
|
|
|
2,173
|
|
|
|
714
|
|
|
|
(2,193
|
)
|
|
|
(2,343
|
)
|
|
|
(1,034
|
)
|
|
|
(154
|
)
|
|
|
(326
|
)
|
Nonoperating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,287
|
)
|
|
|
(8,646
|
)
|
|
|
(10,686
|
)
|
|
|
(7,369
|
)
|
|
|
(15,871
|
)
|
|
|
(14,946
|
)
|
|
|
(6,583
|
)
|
|
|
(1,954
|
)
|
|
|
(223
|
)
|
Change in fair value of interest rate derivatives
|
|
|
279
|
|
|
|
90
|
|
|
|
178
|
|
|
|
2,680
|
|
|
|
797
|
|
|
|
(8,758
|
)
|
|
|
(2,115
|
)
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(128
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
45
|
|
|
|
44
|
|
|
|
45
|
|
|
|
(19
|
)
|
|
|
44
|
|
|
|
(50
|
)
|
|
|
100
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expenses
|
|
|
(4,091
|
)
|
|
|
(8,585
|
)
|
|
|
(10,463
|
)
|
|
|
(4,708
|
)
|
|
|
(15,030
|
)
|
|
|
(23,754
|
)
|
|
|
(8,598
|
)
|
|
|
(1,844
|
)
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,120
|
)
|
|
|
(12,377
|
)
|
|
|
(8,290
|
)
|
|
|
(3,994
|
)
|
|
|
(17,223
|
)
|
|
|
(26,097
|
)
|
|
|
(9,632
|
)
|
|
|
(1,998
|
)
|
|
|
(549
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(288
|
)
|
|
|
(864
|
)
|
|
|
(5,025
|
)
|
|
|
(2,060
|
)
|
|
|
(10,486
|
)
|
|
|
(870
|
)
|
|
|
(2,083
|
)
|
|
|
1,078
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Predecessor
|
|
$
|
(3,832
|
)
|
|
$
|
(11,513
|
)
|
|
$
|
(3,265
|
)
|
|
$
|
(1,934
|
)
|
|
$
|
(6,737
|
)
|
|
$
|
(25,227
|
)
|
|
$
|
(7,549
|
)
|
|
$
|
(3,076
|
)
|
|
$
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
Balance
Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Campus
|
|
|
|
|
|
|
|
|
|
Crest Communities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Historical Campus Crest Communities Predecessor
|
|
|
|
As of
|
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
|
June 30, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
Student housing properties
|
|
$
|
370,400
|
|
|
$
|
348,466
|
|
|
$
|
347,157
|
|
|
$
|
326,217
|
|
|
$
|
182,788
|
|
|
$
|
48,775
|
|
|
$
|
12,691
|
|
Accumulated depreciation
|
|
|
(48,403
|
)
|
|
|
(48,403
|
)
|
|
|
(38,999
|
)
|
|
|
(20,794
|
)
|
|
|
(7,752
|
)
|
|
|
(2,066
|
)
|
|
|
(506
|
)
|
Development in process
|
|
|
7,868
|
|
|
|
3,641
|
|
|
|
3,300
|
|
|
|
15,742
|
|
|
|
18,929
|
|
|
|
25,667
|
|
|
|
15,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net
|
|
|
329,865
|
|
|
|
303,704
|
|
|
|
311,458
|
|
|
|
321,165
|
|
|
|
193,965
|
|
|
|
72,376
|
|
|
|
28,012
|
|
Investment in uncombined entity
|
|
|
16,186
|
|
|
|
3,257
|
|
|
|
2,980
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
29,048
|
|
|
|
21,412
|
|
|
|
17,358
|
|
|
|
20,214
|
|
|
|
19,939
|
|
|
|
5,269
|
|
|
|
1,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
375,099
|
|
|
$
|
328,373
|
|
|
$
|
331,796
|
|
|
$
|
342,155
|
|
|
$
|
213,904
|
|
|
$
|
77,645
|
|
|
$
|
29,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and construction loans
|
|
$
|
132,304
|
|
|
$
|
329,374
|
|
|
$
|
329,102
|
|
|
$
|
322,426
|
|
|
$
|
166,905
|
|
|
$
|
65,560
|
|
|
$
|
21,784
|
|
Lines of credit and other debt
|
|
|
|
|
|
|
17,689
|
|
|
|
14,070
|
|
|
|
9,237
|
|
|
|
6,579
|
|
|
|
771
|
|
|
|
419
|
|
Other liabilities
|
|
|
29,950
|
|
|
|
34,756
|
|
|
|
31,340
|
|
|
|
32,606
|
|
|
|
25,533
|
|
|
|
6,370
|
|
|
|
4,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
162,254
|
|
|
|
381,819
|
|
|
|
374,512
|
|
|
|
364,269
|
|
|
|
199,017
|
|
|
|
72,701
|
|
|
|
26,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners equity (deficit)
|
|
|
267,020
|
|
|
|
(54,245
|
)
|
|
|
(50,090
|
)
|
|
|
(42,502
|
)
|
|
|
(14,589
|
)
|
|
|
(4,974
|
)
|
|
|
(383
|
)
|
Noncontrolling interest
|
|
|
(54,175
|
)
|
|
|
799
|
|
|
|
7,374
|
|
|
|
20,388
|
|
|
|
29,476
|
|
|
|
9,918
|
|
|
|
3,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
212,845
|
|
|
|
(53,446
|
)
|
|
|
(42,716
|
)
|
|
|
(22,114
|
)
|
|
|
14,887
|
|
|
|
4,944
|
|
|
|
3,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
375,099
|
|
|
$
|
328,373
|
|
|
$
|
331,796
|
|
|
$
|
342,155
|
|
|
$
|
213,904
|
|
|
$
|
77,645
|
|
|
$
|
29,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Campus Crest
|
|
|
Historical
|
|
|
|
Communities, Inc.
|
|
|
Campus Crest Communities Predecessor
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(unaudited and in thousands)
|
|
|
Funds from operations (FFO)
(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,120
|
)
|
|
$
|
(12,377
|
)
|
|
$
|
(8,290
|
)
|
|
$
|
(3,994
|
)
|
|
$
|
(17,223
|
)
|
|
$
|
(26,097
|
)
|
|
$
|
(9,632
|
)
|
|
$
|
(1,998
|
)
|
|
$
|
(549
|
)
|
Real estate related depreciation and amortization
|
|
|
9,643
|
|
|
|
18,432
|
|
|
|
9,280
|
|
|
|
8,918
|
|
|
|
18,205
|
|
|
|
13,042
|
|
|
|
5,721
|
|
|
|
1,696
|
|
|
|
521
|
|
Equity portion of real estate related depreciation and
amortization on equity investees
|
|
|
691
|
|
|
|
355
|
|
|
|
157
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
6,214
|
|
|
$
|
6,410
|
|
|
$
|
1,147
|
|
|
$
|
4,924
|
|
|
$
|
1,034
|
|
|
$
|
(13,055
|
)
|
|
$
|
(3,911
|
)
|
|
$
|
(302
|
)
|
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
6,214
|
|
|
$
|
6,410
|
|
|
$
|
1,147
|
|
|
$
|
4,924
|
|
|
$
|
1,034
|
|
|
$
|
(13,055
|
)
|
|
$
|
(3,911
|
)
|
|
$
|
(302
|
)
|
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of change in fair value of interest rate derivatives
|
|
|
(279
|
)
|
|
|
(90
|
)
|
|
|
(2,893
|
)
|
|
|
(2,990
|
)
|
|
|
(3,480
|
)
|
|
|
7,414
|
|
|
|
2,115
|
|
|
|
|
|
|
|
|
|
Elimination of development cost write-off
|
|
|
|
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
1,211
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations adjusted (FFOA)
(2)
|
|
$
|
5,935
|
|
|
$
|
7,531
|
|
|
$
|
(1,746
|
)
|
|
$
|
1,934
|
|
|
$
|
(1,235
|
)
|
|
$
|
(5,438
|
)
|
|
$
|
(1,796
|
)
|
|
$
|
(302
|
)
|
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|