Market Overview

American Campus Communities, Inc. Reports Third Quarter 2018 Financial Results

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Completion of 2018 lease-up positions the company for 14th
consecutive year of growth in same store net operating income, rental
revenue and rental rate – every year since IPO

American Campus Communities, Inc. (NYSE:ACC) today announced the
following financial results for the quarter ended September 30, 2018.

Highlights

  • Reported net loss attributable to ACC of $2.3 million or $0.02 per
    fully diluted share, versus net loss of $1.3 million or $0.01 per
    fully diluted share in the third quarter 2017.
  • Reported quarterly FFOM per share of $0.44 per fully diluted share or
    $60.6 million, versus $0.45 per fully diluted share or $62.1 million
    for the third quarter prior year. FFOM declined versus the prior year
    period primarily due to $613.6 million of capital recycling activity
    completed in the second quarter 2018 and the commencement of
    construction and $2.9 million of associated income for the on-campus
    development project with the University of California, Irvine
    recognized in the prior year period.
  • Increased same store net operating income ("NOI") by 4.5 percent over
    the third quarter 2017 with revenues increasing 2.0 percent, combined
    with a decrease in operating expenses of 0.2 percent primarily
    resulting from continued expense control associated with asset
    management initiatives.
  • Achieved 3.6 percent opening rental revenue growth for 2019 same store
    properties upon completion of the 2018-2019 academic year lease-up.
    Results included 2.0 percent average rental rate growth and occupancy
    of 97.0 percent as of September 30, 2018 versus 95.4 percent for the
    same date prior year.
  • Delivered 10 new owned development and presale development projects
    containing 6,986 beds into service for the 2018-2019 academic year.
    Totaling $669.9 million, the properties were 97.0 percent occupied as
    of September 30, 2018 and opened on time and on budget.
  • Commenced construction on a previously announced American Campus
    Equity (ACE®) development on the campus of San Francisco
    State University, representing the first private developer owned
    on-campus P3 transaction within the California State University System.
  • Awarded a third-party on-campus development project at the University
    of California, Irvine. The company has begun pre-development
    activities for the proposed project, which represents our fifth
    development phase with the university although the full scope,
    feasibility, fees and timing have not been finalized.

"We are pleased with our performance this quarter, which included same
store NOI growth of 4.5 percent and the successful completion of our
Fall 2018 lease-up, positioning us for a 14th consecutive
year of growth in same store rental rate, rental revenue and NOI in
2018," said Bill Bayless, American Campus Communities CEO. "At the
recent National Multifamily Housing Council Student Housing Conference,
industry participants reported continued vibrant transaction activity
and another successful lease-up. Looking forward, we are currently
targeting rental revenue growth for the 2019-2020 academic year in the
range of 1.5 to 3.0 percent through a combination of occupancy and
rental rate growth."

Third Quarter Operating Results

Revenue for the 2018 third quarter totaled $213.5 million versus $196.9
million in the third quarter 2017, and operating income for the quarter
totaled $21.5 million versus $17.6 million in the prior year third
quarter. The increase in revenue and operating income was primarily due
to increased occupancy and rental rates for the 2018-2019 academic year
and growth associated with recently completed development and presale
development projects. Net loss for the 2018 third quarter totaled $2.3
million, or $0.02 per fully diluted share, compared with net loss of
$1.3 million, or $0.01 per fully diluted share for the same quarter in
2017. FFO for the 2018 third quarter totaled $60.6 million, or $0.44 per
fully diluted share, as compared to $59.0 million, or $0.43 per fully
diluted share for the same quarter in 2017. FFOM for the 2018 third
quarter was $60.6 million, or $0.44 per fully diluted share, as compared
to $62.1 million, or $0.45 per fully diluted share for the same quarter
in 2017. The decrease in FFOM versus the prior year period was primarily
due to $613.6 million of capital recycling activity completed in the
second quarter 2018 and the commencement of construction and associated
$2.9 million of income recognition for the on-campus development project
with the University of California, Irvine in the third quarter 2017. A
reconciliation of FFO and FFOM to net income is provided in Table 3.

NOI for same store properties was $80.3 million in the quarter, an
increase of 4.5 percent from $76.9 million in the 2017 third quarter.
Same store property revenues increased by 2.0 percent over the 2017
third quarter due primarily to an increase in occupancy and average
rental rates for the 2018-2019 academic year. Same store property
operating expenses decreased by 0.2 percent versus the prior year
quarter. NOI for the total portfolio increased 12.6 percent to $95.5
million for the quarter from $84.9 million in the comparable period of
2017. A reconciliation of same store NOI to total NOI is provided
in Table 4.

Portfolio Update

Developments

During the quarter, the company placed into service $669.9 million of
owned development and presale development assets on time and on budget.
As of September 30, 2018, these properties were 97.0 percent occupied.
The company also progressed with construction of its $426.6 million
development and $107.3 million presale development pipeline with
expected delivery in Fall 2019 and Fall 2020 and continued to progress
with owned development pipeline projects totaling $657.0 million. These
projects are all core Class A assets located on campus or pedestrian to
campus in their respective markets and remain on track to meet their
collective targeted stabilized development yield in the range of 6.25 –
6.75 percent for developments and 5.75 – 6.25 percent for presale
developments.

American Campus Equity (ACE)

Subsequent to quarter end, the company commenced construction on a
previously announced 584-bed ACE development located on the campus of
San Francisco State University, representing the first private developer
owned on-campus P3 transaction within the California State University
System. Upon delivery in 2020, the $129.2 million apartment community
will feature a mix of private and shared accommodations with diversified
price points, an academic success center, fitness center and ample
common area space.

Third-Party Services

Subsequent to quarter end, the company began pre-development activities
for a proposed fifth-phase third-party on-campus development project at
the University of California, Irvine. The full scope, feasibility, fees
and timing have not been finalized for the proposed project.

Capital Markets

At-The-Market (ATM) Share Offering Program

The company did not sell any shares under the ATM during the quarter.

2018 Outlook

The company is tightening its 2018 outlook primarily to reflect the
results of the Fall 2018 lease-up and the financial results achieved
through the third quarter of 2018. Based upon these and other factors,
management anticipates that 2018 FFO will be in the range of $2.42 to
$2.45 and FFOM will be in the range of $2.29 to $2.33 per fully diluted
share, respectively. For additional details regarding the company's
updated 2018 outlook, please see pages S-17 through S-18 of the
Supplemental Analyst Package 3Q 2018.

All guidance is based on the current expectations and judgment of the
company's management team.

A reconciliation of the range provided for projected net income to
projected FFO and FFOM for the fiscal year ending December 31, 2018 is
included in Table 5.

Supplemental Information and Earnings Conference Call

Supplemental financial and operating information, as well as this
release, are available in the investor relations section of the American
Campus Communities website, www.americancampus.com.
In addition, the company will host a conference call to discuss second
quarter results and the 2018 outlook on Tuesday, October 23, 2018 at
10:00 a.m. ET (9:00 a.m. CT). The conference call may be accessed by
dialing 888-317-6003 passcode 4328465, or 412-317-6061 for international
participants.

To listen to the live webcast, go to www.americancampus.com
at least 15 minutes prior to the call so that required audio software
can be downloaded. A replay of the conference call will be available
beginning one hour after the end of the call until November 6, 2018 by
dialing 877-344-7529 or 412-317-0088 conference number 10124006.
Additionally, the replay will be available for one year at www.americancampus.com.

Non-GAAP Financial Measures

The National Association of Real Estate Investment Trusts ("NAREIT")
currently defines Funds from Operations ("FFO") as net income or loss
attributable to common shares computed in accordance with generally
accepted accounting principles ("GAAP"), excluding gains or losses from
depreciable operating property sales, impairment charges and real estate
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. We present FFO because we consider it
an important supplemental measure of our operating performance and
believe it is frequently used by securities analysts, investors and
other interested parties in the evaluation of REITs. We also believe it
is meaningful to present a measure we refer to as FFO-Modified, or
("FFOM"), which reflects certain adjustments related to the economic
performance of our on-campus participating properties, the elimination
of real estate transaction costs, and other items, as we determine in
good faith, that do not reflect our core operations on a comparative
basis. FFO and FFOM should not be considered as alternatives to net
income or loss computed in accordance with GAAP as an indicator of our
financial performance or to cash flow from operating activities computed
in accordance with GAAP as an indicator of our liquidity, nor are these
measures indicative of funds available to fund our cash needs, including
our ability to pay dividends or make distributions.

The company defines property net operating income ("NOI") as property
revenues less direct property operating expenses, excluding
depreciation, but including allocated corporate general and
administrative expenses.

About American Campus Communities

American Campus Communities, Inc. is the largest owner, manager and
developer of high-quality student housing communities in the United
States. The company is a fully integrated, self-managed and
self-administered equity real estate investment trust (REIT) with
expertise in the design, finance, development, construction management
and operational management of student housing properties. As of
September 30, 2018, American Campus Communities owned 168 student
housing properties containing approximately 103,500 beds. Including its
owned and third-party managed properties, ACC's total managed portfolio
consisted of 202 properties with approximately 131,900 beds. Visit www.americancampus.com.

Forward-Looking Statements

In addition to historical information, this press release contains
forward-looking statements under the applicable federal securities law.
These statements are based on management's current expectations and
assumptions regarding markets in which American Campus Communities, Inc.
(the "Company") operates, operational strategies, anticipated events and
trends, the economy, and other future conditions. Forward-looking
statements are not guarantees of future performance and involve certain
risks and uncertainties, which are difficult to predict. For discussions
of some risks and uncertainties that could cause actual results to
differ materially from those expressed or implied by the forward-looking
statements, please refer to our filings with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the year ended
December 31, 2017 under the heading "Risk Factors" and under the heading
"Business - Forward-looking Statements" and subsequent quarterly reports
on Form 10-Q. We undertake no obligation to publicly update any
forward-looking statements, including our expected 2018 operating
results, whether as a result of new information, future events, or
otherwise.

         

Table 1

American Campus Communities, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands)

 
September 30, 2018 December 31, 2017
(unaudited)
Assets
 
Investments in real estate:
Owned properties, net $ 6,521,705 $ 6,450,364
On-campus participating properties, net   78,866     81,804  
Investments in real estate, net 6,600,571 6,532,168
 
Cash and cash equivalents 50,801 41,182
Restricted cash 39,740 23,590
Student contracts receivable, net 45,297 9,170
Other assets1   309,639     291,260  
 
Total assets $ 7,046,048   $ 6,897,370  
 
Liabilities and equity
 
Liabilities:
Secured mortgage, construction and bond debt, net $ 920,345 $ 664,020
Unsecured notes, net 1,587,796 1,585,855
Unsecured term loans, net 198,681 647,044
Unsecured revolving credit facility 266,900 127,600
Accounts payable and accrued expenses 86,481 53,741
Other liabilities1   238,921     187,983  
Total liabilities 3,299,124 3,266,243
 
Redeemable noncontrolling interests 184,654 132,169
 
Equity:

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

Common stock 1,370 1,364
Additional paid in capital 4,456,208 4,326,910
Common stock held in rabbi trust (3,092 ) (2,944 )
Accumulated earnings and dividends (955,310 ) (837,644 )

Accumulated other comprehensive loss

  (1,975 )   (2,701 )

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

3,497,201 3,484,985
Noncontrolling interests – partially owned properties   65,069     13,973  
Total equity   3,562,270     3,498,958  
 
Total liabilities and equity $ 7,046,048   $ 6,897,370  
1.     For purposes of calculating net asset value at September 30, 2018,
the company excludes other assets of approximately $5.0 million
related to net deferred financing costs on its revolving credit
facility and the net value of in-place leases and other liabilities
of approximately $87.1 million related to deferred revenue and fee
income.
 
         

Table 2

American Campus Communities, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited, dollars in thousands, except share and per share
data)

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2018     2017 2018     2017
Revenues
Owned properties $ 202,834 $ 183,569 $ 597,854 $ 531,556
On-campus participating properties 6,980 6,799 23,605 23,128
Third-party development services 835 3,566 3,883 4,697
Third-party management services 2,128 2,291 7,311 7,193
Resident services   692     713     2,284     2,310  
Total revenues 213,469 196,938 634,937 568,884
 
Operating expenses (income)
Owned properties1 107,997 99,423 282,193 249,552
On-campus participating properties 3,875 3,923 11,030 11,080
Third-party development and management services 3,831 3,879 11,573 11,789
General and administrative2 7,183 8,684 27,055 25,200
Depreciation and amortization 66,131 61,125 194,447 169,391
Ground/facility leases 2,951 2,329 8,526 7,151
Provision for real estate impairment3 15,317
Other operating income           (2,648 )    
Total operating expenses 191,968 179,363 532,176 489,480
 
Operating income 21,501 17,575 102,761 79,404
 
Nonoperating income (expenses)
Interest income 1,274 1,259 3,740 3,723
Interest expense (25,185 ) (18,654 ) (72,207 ) (47,944 )
Amortization of deferred financing costs (1,116 ) (1,146 ) (4,744 ) (3,197 )
Gain (loss) from disposition of real estate4 42,314 (632 )
Loss from early extinguishment of debt (784 )
Other nonoperating income   570         570      
Total nonoperating expenses   (24,457 )   (18,541 )   (31,111 )   (48,050 )
 
(Loss) income before income taxes (2,956 ) (966 ) 71,650 31,354
Income tax provision4   219     (267 )   (2,147 )   (791 )
Net (loss) income (2,737 ) (1,233 ) 69,503 30,563
Net loss (income) attributable to noncontrolling interests   392     (79 )   88     (587 )

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

$ (2,345 ) $ (1,312 ) $ 69,591   $ 29,976  
Other comprehensive income
Change in fair value of interest rate swaps and other   81     233     726     872  
Comprehensive (loss) income $ (2,264 ) $ (1,079 ) $ 70,317   $ 30,848  
 
Net (loss) income per share attributable to ACC, Inc.

and Subsidiaries common shareholders

 
Basic and diluted $ (0.02 ) $ (0.01 ) $ 0.50   $ 0.21  
 
Weighted-average common shares outstanding
 
Basic   137,022,012     136,421,198     136,742,094     134,708,361  
 
Diluted   137,022,012     136,421,198     137,660,802     135,585,850  

1.

    Owned properties operating expenses for the three months ended
September 30, 2018 include $0.3 million of transaction costs
incurred in connection with the closing of a presale transaction in
August 2018. In addition to the transaction costs described above,
owned property operating expenses for the nine months ended
September 30, 2018 also include $0.2 million of the company's
proportionate share of transaction costs incurred in connection with
the closing of the ACC / Allianz joint venture transaction in May
2018.
 

2.

The nine months ended September 30, 2018 include $5.8 million of
transaction costs incurred in connection with the closing of the ACC
/ Allianz joint venture transaction. The nine months ended September
30, 2017 include $4.5 million of contractual executive separation
and retirement charges incurred in the first and second quarter of
2017 with regard to the retirement of the company's former Chief
Financial Officer. The three and nine months ended September 30,
2017 include $2.9 million in transaction costs related to our
initial investments in the Core Spaces/DRW joint ventures.
 

3.

Represents an impairment charge recorded for an owned property
currently in receivership that is in the process of being
transferred to the lender in settlement of the property's $27.4
million mortgage loan that matured in August 2017.
 

4.

Income tax provision for the three months ended September 30, 2018
includes a $0.5 million decrease in estimated state income tax
related to a tax gain resulting from the ACC / Allianz real estate
joint venture transaction. Income tax provision for the nine months
ended September 30, 2018 includes $1.3 million related to the state
income tax described above.
 
         

Table 3

American Campus Communities, Inc. and Subsidiaries

Consolidated Statements of Funds from Operations

(unaudited, dollars in thousands, except share and per share
data)

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2018     2017 2018     2017

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

$ (2,345 ) $ (1,312 ) $ 69,591 $ 29,976
Noncontrolling interests 121 85 896 593
(Gain) loss from disposition of real estate (42,314 ) 632
Elimination of provision for real estate impairment 15,317
Real estate related depreciation and amortization   62,794     60,202     187,943     166,931  
Funds from operations ("FFO") attributable to common stockholders
and OP unitholders
60,570 58,975 216,116 213,449
Elimination of operations of on-campus participating properties
Net loss (income) from on-campus participating properties 436 479 (1,715 ) (1,373 )
Amortization of investment in on-campus participating properties   (1,962 )   (1,892 )   (5,856 )   (5,621 )
59,044 57,562 208,545 206,455
Modifications to reflect operational performance of on-campus
participating properties
Our share of net cash flow1 644 452 2,232 1,987
Management fees   302     306     1,058     1,046  
Contribution from on-campus participating properties 946 758 3,290 3,033
 
Transaction costs2 (232 ) 2,855 7,586 2,855
Elimination of loss from early extinguishment of debt3 784
Elimination of gain from litigation settlement4 (2,648 )
Elimination of FFO from property in receivership5 842 895 2,037 977
Contractual executive separation and retirement charges6               4,515  
Funds from operations-modified ("FFOM") attributable to common
stockholders and OP unitholders
$ 60,600   $ 62,070   $ 219,594   $ 217,835  
 
FFO per share – diluted $ 0.44   $ 0.43   $ 1.56   $ 1.56  
 
FFOM per share – diluted $ 0.44   $ 0.45   $ 1.58   $ 1.59  
 
Weighted-average common shares outstanding - diluted   138,585,384     138,328,932     138,569,643     136,686,611  
     

1.

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

2.

The three months ended September 30, 2018 amount represents
transaction costs incurred in connection with the closing of a
presale transaction in August 2018, net of a decrease in estimated
state income tax related to a tax gain resulting from the ACC /
Allianz real estate joint venture transaction in May 2018. The nine
months ended September 30, 2018 include the costs discussed above in
addition to transaction costs incurred in connection with the
closing of the ACC / Allianz real estate joint venture transaction.
The nine months ended September 30, 2017 amount represents
transaction costs related to the company's initial investment in the
Core/Spaces/DRW joint ventures that occurred in the third quarter of
2017.
 

3.

Represents losses associated with the early extinguishment of
mortgage loans due to real estate disposition transactions,
including the sale of partial ownership interests in properties.
Such costs are excluded from gains from disposition of real estate
reported in accordance with GAAP. However, management views these
losses as an incremental cost of the transactions because the debt
was extinguished in connection with the consummation of the
transactions and the company had no intent to extinguish the debt
absent the transactions.
 

4.

Represents a gain related to cash proceeds received from a
litigation settlement in the second quarter 2018. Management
believes it is appropriate to exclude this gain from FFOM in order
to more accurately present the operating results of the company on a
comparative basis during the periods presented.
 

5.

Represents FFO for an owned property that has been in receivership
since May 2017 that is in the process of being transferred to the
lender in settlement of the property's $27.4 million mortgage loan
that matured in August 2017. As the property is managed by a third
party and the lender receives all cash flow from the property,
management believes that excluding the FFO from the property more
appropriately reflects the results of the company's operations. FFOM
for the prior year comparable periods has been adjusted to reflect
this elimination.
 

6.

Represents contractual executive separation and retirement charges
incurred in the first and second quarter of 2017 with regard to the
retirement of the company's former Chief Financial Officer.
 
           

Table 4

American Campus Communities, Inc. and Subsidiaries

Owned Properties Results of Operations

(unaudited, dollars in thousands)

 
Three Months Ended September 30, Nine Months Ended September 30,
2018     2017     $Change     % Change 2018     2017     $Change     % Change
Owned properties revenues
Same store properties $ 170,103 $ 166,786 $ 3,317 2.0 % $ 511,415 $ 502,382 $ 9,033 1.8 %
New properties 32,684 12,023 20,661 79,480 13,943 65,537
Sold and held for sale properties1   739     5,473   (4,734 )     9,243     17,541   (8,298 )  
Total revenues2 $ 203,526   $ 184,282 $ 19,244   10.4 % $ 600,138   $ 533,866 $ 66,272   12.4 %
Owned properties operating expenses
Same store properties3 $ 89,771 $ 89,931 $ (160 ) (0.2 %) $ 238,798 $ 233,473 $ 5,325 2.3 %
New properties 17,375 7,299 10,076 38,505 8,628 29,877
Other3 217 217 561 561
Sold and held for sale properties1 4   634     2,193   (1,559 )     4,329     7,451   (3,122 )  
Total operating expenses $ 107,997   $ 99,423 $ 8,574   8.6 % $ 282,193   $ 249,552 $ 32,641   13.1 %
Owned properties net operating income
Same store properties $ 80,332 $ 76,855 $ 3,477 4.5 % $ 272,617 $ 268,909 $ 3,708 1.4 %
New properties 15,309 4,724 10,585 40,975 5,315 35,660
Other4 (217 ) (217 ) (561 ) (561 )
Sold and held for sale properties1 4   105     3,280   (3,175 )     4,914     10,090   (5,176 )  
Total net operating income $ 95,529   $ 84,859 $ 10,670   12.6 % $ 317,945   $ 284,314 $ 33,631   11.8 %
 

Note: The same store grouping above represents properties owned and
operating for both of the entire years ended December 31, 2018 and 2017,
which are not conducting or planning to conduct substantial development,
redevelopment, or repositioning activities, and are not classified as
held for sale as of September 30, 2018.

   

1.

Includes properties sold in 2017 and 2018, and one property
currently in receivership that is in the process of being
transferred to the lender in settlement of the property's $27.4
million mortgage loan that matured in August 2017.
 

2.

Includes revenues that are reflected as Resident Services Revenue on
the accompanying consolidated statements of comprehensive income.
 

3.

Includes transaction costs and recurring professional fees related
to the formation and operation of the ACC / Allianz real estate
joint venture that are included in owned properties operating
expenses in the accompanying consolidated statements of
comprehensive income.
 

4.

Does not include the allocation of payroll and other administrative
costs related to corporate management and oversight.
 
         

Table 5

American Campus Communities, Inc. and Subsidiaries

2018 Outlook1

(dollars in thousands, except share and per share data)

 
Prior Guidance Current Guidance
Low     High Low     High
 
Net income $ 82,200 $ 89,500 $ 84,600 $ 88,200
Noncontrolling interests 1,100 1,200 1,100 1,200
Depreciation and amortization   249,800     249,800     249,800     249,800  
Funds from operations ("FFO") $ 333,100 $ 340,500 $ 335,500 $ 339,200
 
Elimination of operations from on-campus participating properties (12,600 ) (12,300 ) (12,600 ) (12,300 )
Contribution from on-campus participating properties 4,300 4,800 4,300 4,800
Elimination of effect of transfer of asset to lender2 (17,000 ) (17,000 ) (17,000 ) (17,000 )
Transaction costs3 7,800 7,800 7,600 7,600
Elimination of loss from early extinguishment of debt3 780 780 780 780
Elimination of gain from litigation settlement3 (2,650 ) (2,650 ) (2,650 ) (2,650 )
Elimination of FFO from property in receivership3   1,790     1,790     2,050     2,050  
Funds from operations - modified ("FFOM") $ 315,520   $ 323,720   $ 317,980   $ 322,480  
 
Net income per share - diluted $ 0.59   $ 0.65   $ 0.61   $ 0.64  
 
FFO per share - diluted $ 2.40   $ 2.46   $ 2.42   $ 2.45  
 
FFOM per share - diluted $ 2.28   $ 2.34   $ 2.29   $ 2.33  
 
Weighted-average common shares outstanding - diluted   138,565,000     138,565,000     138,565,000     138,565,000  
 

1. The company believes that the financial results for the
fiscal year ending December 31, 2018 may be affected by, among other
factors:

  • national and regional economic trends and events;
  • the timing of acquisitions, dispositions or joint venture activity;
  • interest rate risk;
  • the timing of commencement of construction on owned development
    projects;
  • the ability of the company to be awarded and the timing of the
    commencement of construction on third-party development projects;
  • university enrollment, funding and policy trends;
  • the ability of the company to earn third-party management revenues;
  • the amount of income recognized by the taxable REIT subsidiaries and
    any corresponding income tax expense;
  • the ability of the company to integrate acquired properties;
  • the outcome of legal proceedings arising in the normal course of
    business; and
  • the finalization of property tax rates and assessed values in certain
    jurisdictions.

2. Represents the net effect of a gain on the extinguishment
of debt for Blanton Common, a property being transferred to the lender
in settlement of the property's $27.4 million mortgage loan, offset by a
loss expected to be incurred as a result of the anticipated transfer to
the lender.

3. Refer to Table 3 for explanations of adjustments made for
the purpose of calculating FFOM.

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