United
States
Securities And Exchange Commission
Washington, D.C. 20549
______________
FORM 8-K/A
(Amendment
No. 1)
______________
CURRENT REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of Report (Date of earliest event
reported): January 30, 2015
CAMPUS
CREST COMMUNITIES, INC.
(Exact Name of Registrant as Specified
in Its Charter)
| Maryland |
001-34872 |
27-2481988 |
| (State or other jurisdiction |
(Commission File Number) |
(IRS Employer |
| of incorporation or organization) |
|
Identification No.) |
| 2100 Rexford Road, Suite 414 |
|
| Charlotte, North Carolina |
28211 |
| (Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s telephone number,
including area code: (704) 496-2500
Not Applicable
(Former name or former address, if changed
since last report)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant
to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EXPLANATORY NOTE
This Current
Report on Form 8-K/A (“Amendment No. 1”) amends the Current Report on Form 8-K filed with the Securities and
Exchange Commission by Campus Crest Communities, Inc. (the “Company”) on February 2, 2015 (the “Original
8-K”), announcing the consummation of the acquisition by the Company and certain of its affiliates on January 30, 2015
(the “Acquisition”) of (i) the remaining interests of the former members (the “Sellers”) of Copper
Beech Townhome Communities, LLC (“CBTC”) and Copper Beech Townhome Communities (PA), LLC (“CBTC PA”
and, together with CBTC, “Copper Beech”) in 29 student housing properties of a portfolio consisting of 35 student
housing properties, two undeveloped land parcels and a corporate office building, and (ii) the Sellers’ remaining
interests in Copper Beech at Ames, Iowa, pursuant to that certain Amendment to the Company’s purchase and sale
agreement with the Sellers.
In the Original 8-K,
the Company indicated that it would file the financial statements and pro forma financial information required under Item 9.01
with respect to the Acquisition by amendment pursuant to Item 9.01(a)(4). The Company is now filing this Amendment No. 1 to include
the required financial statements and pro forma financial information as a result of the completion of the Acquisition.
| Item 9.01 | Financial Statements and Exhibits. |
| (a) | Financial Statements of Real Estate Operations Acquired. |
The audited historical
Combined Consolidated Statement of Revenues and Certain Expenses of Copper Beech Townhome Communities Portfolio for the year ended
December 31, 2014 are filed herewith as Exhibit 99.1 and are incorporated herein by this reference.
| (b) | Pro Forma Financial Information. |
The Unaudited Pro Forma
Condensed Consolidated Financial Statements of the Company for the year ended December 31, 2014, giving effect to the Acquisition,
are filed herewith as Exhibit 99.2 and are incorporated herein by this reference.
|
Exhibit
No. |
|
Exhibit
Description |
| 23.1 |
|
Consent of Independent Auditors. |
|
99.1
|
|
The audited historical Combined Consolidated Statement of Revenues and Certain Expenses of Copper Beech Townhome Communities Portfolio for the year ended December 31, 2014. |
| 99.2 |
|
The Unaudited Pro Forma Condensed Consolidated Financial Statements of the Company for the year ended December 31, 2014. |
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
| |
CAMPUS CREST COMMUNITIES, INC. |
|
| |
|
|
|
| |
By: |
/s/ Scott R. Rochon |
|
| |
|
Scott R. Rochon |
|
| |
|
Chief Accounting Officer |
|
Dated: April 28, 2015
Exhibit Index
|
Exhibit
Number |
|
Description
|
| 23.1 |
|
Consent of Independent Auditors. |
|
99.1
|
|
The audited historical Combined Consolidated Statement of Revenues and Certain Expenses of Copper Beech Townhome Communities Portfolio for the year ended December 31, 2014. |
| 99.2 |
|
The Unaudited Pro Forma Condensed Consolidated Financial Statements of the Company for the year ended December 31, 2014. |
Exhibit 23.1
Consent of Independent Auditors
Board of Directors
Campus Crest Communities, Inc.:
We consent to the
incorporation by reference in the registration statements on Form S-3, as amended, (Nos. 333-177648, 333-188144, and 333-192413)
and on Form S-8 (No. 333-169958) of Campus Crest Communities, Inc. of our report dated April 27, 2015, with respect to the combined
consolidated statement of revenues and certain expenses of Copper Beech Townhome Communities Portfolio for the year ended December
31, 2014, which report appears in the Form 8-K of Campus Crest Communities, Inc. dated April 28, 2015. Our report refers to the
fact that the combined consolidated statement of revenues and certain expenses of Copper Beech Townhome Communities Portfolio was
prepared for the purpose of complying with the rules and regulations of the U.S. Securities and Exchange Commission, as described
in Note 2 to the combined consolidated statement of revenues and certain expenses, and it is not intended to be a complete presentation
of Copper Beech Townhome Communities Portfolio’s revenues and expenses.
/s/ KPMG LLP
New York, New York
April 28, 2015
Exhibit 99.1
COPPER BEECH
TOWNHOME COMMUNITIES PORTFOLIO
COMBINED CONSOLIDATED STATEMENT OF REVENUES
AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31,
2014
Copper
Beech Townhome Communities Portfolio
Combined
Consolidated Statement of Revenues and Certain Expenses
For the Year Ended December 31, 2014
| Index |
Page |
| |
|
| Independent Auditors’ Report |
1 |
| Combined Consolidated Statement of Revenues and Certain Expenses |
2 |
| Notes to Combined Consolidated Statement of Revenues and Certain Expenses |
3 – 6 |
Independent Auditors’ Report
The Members
Copper Beech Townhome Communities Portfolio:
We have audited the accompanying combined
consolidated statement of revenues and certain expenses of Copper Beech Townhome Communities Portfolio for the year ended December 31,
2014, and the related notes (the combined consolidated financial statement).
Management’s Responsibility
for the Combined Consolidated Financial Statement
Management is responsible for the presentation
of this combined consolidated financial statement in accordance with the rules and regulations of the U.S. Securities and Exchange
Commission as described in Note 2; this includes the design, implementation, and maintenance of internal control relevant
to the preparation and fair presentation of the combined consolidated financial statement that is free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion
on the combined consolidated financial statement based on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined consolidated financial statement is free from material misstatement.
An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the combined consolidated financial statement. The procedures selected
depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the combined consolidated
financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation and fair presentation of the combined consolidated financial statement in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the combined consolidated financial statement.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined consolidated
financial statement referred to above presents fairly, in all material respects, the combined and consolidated revenues and certain
expenses described in Note 2 of Copper Beech Townhome Communities Portfolio for the year ended December 31, 2014, in
accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to Note 2 to the
combined consolidated financial statement, which describes that the accompanying combined consolidated financial statement was
prepared for the purpose of complying with the rules and regulations of the U.S. Securities and Exchange Commission and it is not
intended to be a complete presentation of Copper Beech Townhome Communities Portfolio’s combined and consolidated revenues
and certain expenses. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
New York, New York
April 27, 2015
Copper
Beech Townhome Communities Portfolio
Combined
Consolidated Statement of Revenues and Certain Expenses
For the Year Ended December 31, 2014
(In thousands)
| Revenues: | |
| | |
| Student housing rentals | |
$ | 56,928 | |
| Student housing services | |
| 4,581 | |
| Total revenues | |
| 61,509 | |
| Certain expenses: | |
| | |
| Student housing operations | |
| 24,165 | |
| General and administration | |
| 1,877 | |
| Interest expense | |
| 16,338 | |
| Total certain expenses | |
| 42,380 | |
| Revenues in excess of certain expenses | |
$ | 19,129 | |
See accompanying notes to the combined consolidated
statement of revenues and certain expenses.
Copper
Beech Townhome Communities Portfolio
Combined
Consolidated Statement of Revenues and Certain Expenses
For the Year Ended December 31, 2014
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization
Copper Beech Townhome
Communities Portfolio (the “Acquired CB Portfolio”) consists of a group of 29 student rental townhome communities,
two undeveloped land parcels and a corporate office building (collectively referred to as the townhome communities). As of December
31, 2014, Campus Crest Communities, Inc. (Campus Crest) owned a non-controlling equity interest in the individual entities that
owned the townhome communities. Each townhome community is held in a separate entity and certain entities own and consolidate special-purpose
entities that were formed to facilitate borrowings under their respective loans. All of the Acquired CB Portfolio entities are
under common management.
In January 2015, Campus
Crest acquired the controlling ownership interest in 27 townhome communities of the Acquired CB Portfolio resulting in Campus Crest
owning 100% of 25 townhome communities, the two undeveloped land parcels, and the corporate office building, and owning 87% and
86% of two townhome communities. Management expects to acquire the controlling ownership interest in the remaining two townhome
communities upon the receipt of lender consents.
This combined consolidated
statement of revenues and certain expenses includes the operations of the 29 townhome communities, undeveloped land, and corporate
office building that comprise the Acquired CB Portfolio for the year ended December 31, 2014.
Campus Crest’s
acquisition of the Acquired CB Portfolio was part of a larger transaction in which it will retain its 48% ownership interest in
four additional townhome communities and relinquish its 48% ownership interest in 2 townhome communities. The results of these
six townhome communities that were not acquired by Campus Crest are not included in this combined consolidated statement of revenue
and certain expenses.
Description of Business
The Acquired CB Portfolio
consists of student rental townhome communities in 15 geographic markets in the United States spanning 11 states. The Acquired
CB Portfolio comprises approximately 4,250 rentable units with approximately 11,500 rentable beds located close to college campuses.
As of December 31, 2014, the Acquired CB Portfolio included student housing properties in the following markets, of which
certain markets are served by multiple properties:
| Geographic Market | |
Educational Institution | |
Initial Year in Market |
| State College, PA | |
Penn State University | |
1996 |
| Harrisonburg, VA | |
James Madison University | |
2000 |
| Indiana, PA | |
Indiana University of Pennsylvania | |
2000 |
| Radford, VA | |
Radford University | |
2002 |
| West Lafayette, IN | |
Purdue University | |
2003 |
| Bloomington, IN | |
Indiana University | |
2005 |
| Mt. Pleasant, MI | |
Central Michigan University | |
2005 |
| Bowling Green, OH | |
Bowling Green State University | |
2005 |
| Fresno, CA | |
California State University, Fresno | |
2006 |
| Allendale, MI | |
Grand Valley State University | |
2006 |
| Columbia, MO | |
University of Missouri | |
2006 |
| Columbia, SC | |
University of South Carolina | |
2007 |
| Statesboro, GA | |
Georgia Southern University | |
2007 |
| Auburn, AL | |
Auburn University | |
2009 |
| San Marcos, TX | |
Texas State University | |
2010 |
Copper
Beech Townhome Communities Portfolio
Combined
Consolidated Statement of Revenues and Certain Expenses
For the Year Ended December 31, 2014
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined
consolidated statement of revenues and certain expenses for the year ended December 31, 2014 was prepared for the purpose
of inclusion in the Form 8-K of Campus Crest to comply with the rules and regulations of the United States Securities and
Exchange Commission. The combined consolidated statement of revenues and certain expenses is not intended to be a complete presentation
of the actual operations of the Acquired CB Portfolio for the period presented, as certain expenses have been excluded such as
depreciation and amortization, and certain owner expenses that are not attributable to Campus Crest and the ongoing operations
of the Acquired CB Portfolio. Management is not aware of any material factors relating to the properties that would cause the reported
financial information not to be indicative of future operating results.
The Acquired CB Portfolio
consists of entities in which Campus Crest acquired or expects to acquire a controlling ownership interest. Before Campus Crest
acquired a controlling financial ownership interest, the Acquired CB Portfolio entities were under common management. The accompanying
combined consolidated statement of revenues and certain expenses includes the accounts of the Acquired CB Portfolio and all significant
intercompany activity among the combined and consolidated entities have been eliminated.
Aside from the Acquired
CB Portfolio’s strategic focus in the student rental market, there are no material concentrations of tenants throughout the
properties.
Use of Estimates
The preparation of
combined consolidated statement of revenues and certain expenses in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of combined and consolidated revenue and
certain expenses. Actual results could differ from those estimates.
Revenue Recognition
Tenants (primarily
students) are required to execute lease contracts with monthly payment schedules. Rental revenue is recognized on a straight-line
basis over the term of the respective leases. Generally, each executed lease is required to be accompanied by a signed parental
guaranty. Service revenue is recognized when earned.
Student Housing Operating Expenses
Student housing operating
expenses represent the direct expenses of operating the properties and consist primarily of payroll, utilities, repairs and maintenance,
insurance, property taxes, and other operating expenses.
General and Administration
expenses include the cost of corporate operations including employees located across the country that oversee multiple properties
and at the corporate office.
Certain costs such
as interest, property taxes, and insurance are capitalized during the construction period. Upon the property being placed in service
for tenant use, any such subsequent costs are recorded as operating expenses in the period in which they are incurred.
Commitments and Contingencies
Liabilities for loss
contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable
that a liability has been incurred and the amount of the assessment can be reasonably estimated. Legal costs incurred in connection
with loss contingencies are expensed as incurred.
Management is not
aware of any other material litigation nor, to management’s knowledge, is any material litigation currently threatened against
the Acquired CB Portfolio other than routine litigation, claims, and administrative proceedings arising in the ordinary course
of business.
Copper
Beech Townhome Communities Portfolio
Combined
Consolidated Statement of Revenues and Certain Expenses
For the Year Ended December 31, 2014
NOTE 3 – LONG-TERM DEBT AND INTEREST EXPENSE
The Acquired CB Portfolio’s
combined consolidated statement of revenues and certain expenses includes interest expense of approximately $16.3 million for the
year ended December 31, 2014. Loans with a carrying amount of $285.1 million are outstanding at December 31, 2014. These
loans are typically secured by the underlying properties. The loans carry various maturity dates and fixed and variable interest
rates ranging from 2.15% to 6.27%. Most of the loans carry a fixed interest rate unless otherwise noted in the following table.
The following summarizes
the key elements of the long-term debt expected to remain within the Acquired CB Portfolio:
| |
| |
(in thousands) | | |
|
| |
| |
January 1, 2014 | | |
December 31, 2014 | | |
|
| Entity | |
Maturity | |
| Carrying Amount | | |
| Carrying amount | | |
Interest |
| CB1 | |
02/2016 | |
$ | 5,055 | | |
$ | 4,979 | | |
5.61% |
| CB2 | |
08/2019 | |
| 8,561 | | |
| 8,444 | | |
5.97% |
| CBTC1 | |
10/2020 | |
| 5,655 | | |
| 5,569 | | |
4.99% |
| CBTC3 (2) | |
06/2017 | |
| 6,330 | | |
| 6,500 | | |
LIBOR plus 2.0% |
| |
| |
| | | |
| | | |
(2.15% at December 31, 2014) |
| CBTC4 | |
10/2015 | |
| 6,004 | | |
| 5,916 | | |
5.90% |
| CBTC7 | |
11/2016 | |
| 12,095 | | |
| 11,934 | | |
5.99% |
| CBTC11 | |
02/2015 | |
| 14,185 | | |
| 13,872 | | |
5.23% |
| CBTC12 | |
10/2016 | |
| 10,596 | | |
| 10,461 | | |
6.22% |
| CBTC13 | |
10/2015 | |
| 18,518 | | |
| 18,178 | | |
5.47% |
| CBTC15 | |
10/2015 | |
| 12,461 | | |
| 12,269 | | |
5.63% |
| CBTC16 | |
10/2016 | |
| 23,172 | | |
| 22,861 | | |
5.98% |
| CBTC20 | |
10/2016 | |
| 23,920 | | |
| 23,614 | | |
6.22% |
| CBTC21 | |
10/2017 | |
| 30,568 | | |
| 30,173 | | |
5.81% |
| CBTC24 | |
09/2017 | |
| 11,734 | | |
| 11,595 | | |
6.27% |
| CBTC25 | |
09/2017 | |
| 36,432 | | |
| 36,001 | | |
6.27% |
| CBTC31 (1) | |
open ended | |
| 1,500 | | |
| 1,500 | | |
Prime |
| |
| |
| | | |
| | | |
(3.25% at December 31, 2014) |
| CBTC32 | |
08/2020 | |
| 6,012 | | |
| 5,914 | | |
5.14% |
| CBTC36 | |
02/2015 | |
| 9,401 | | |
| 9,703 | | |
LIBOR plus 2.5% |
| |
| |
| | | |
| | | |
(2.65% at December 31, 2014) |
| CBTC38 | |
02/2015 | |
| 9,817 | | |
| 10,130 | | |
LIBOR plus 2.5% |
| |
| |
| | | |
| | | |
(2.65% at December 31, 2014) |
| Various | |
06/2016 | |
| 33,233 | | |
| 32,728 | | |
5.45% |
| Various | |
06/2016 | |
| 2,769 | | |
| 2,727 | | |
5.45% |
| | |
| |
$ | 288,018 | | |
$ | 285,068 | | |
|
| (1) | The CBTC31 loan is from a member of that entity. |
| (2) | The CBTC3 loan was refinanced in June 2014. |
Interest expense also
includes approximately $0.3 million from $4.2 million in lines of credit outstanding (with variable interest rates ranging from
2.5% to 4.3%) and $2.6 million in loans to affiliates of Copper Beach outstanding (with fixed interest rates ranging from 5% to
7%) at December 31, 2014.
Copper
Beech Townhome Communities Portfolio
Combined
Consolidated Statement of Revenues and Certain Expenses
For the Year Ended December 31, 2014
NOTE 4 – TAXES
The entities comprising
the Acquired CB Portfolio are primarily organized as pass-through entities, partnerships and limited liability companies, for income
tax purposes. As such, no provision for income taxes is recognized for these entities in the combined consolidated statement. These
entities’ owners are responsible to report their allocable shares of taxable income and losses on their respective tax returns.
Management evaluates
the uncertainties of tax positions taken or expected to be taken based on the probability of whether it is more-likely than-not
the positions will be sustained upon audit based on technical merit for open tax years. Management concluded that there are no
material uncertain tax liabilities to be recognized or disclosed. The policy is, if necessary, to account for interest and penalties
for uncertain tax positions as a component of general and administration expense.
The Acquired CB Portfolio
includes a Taxable REIT Subsidiary (TRS). The TRS is used to capture costs associated with certain activities that benefit the
Acquired CB Portfolio and are then billed back to the operating entities to preserve real estate investment trust (REIT) status.
The income taxes attributable to the TRS are not significant for the year ended December 31, 2014.
NOTE 5 – SUBSEQUENT EVENTS
Events occurring through
April 27, 2015 have been evaluated for potential recognition or disclosure in the combined consolidated statement of revenues and
certain expenses, the date the combined consolidated financial statement was available to be issued. No events requiring disclosure
in or adjustment to the combined consolidated financial statement were noted other than (i) Campus Crest’s acquisition of
the Acquired CB Portfolio in January 2015, (ii) a new mortgage debt agreement that is secured by an Acquired CB Portfolio townhome
was entered into for $15.8 million with a majority of the proceeds used to repay the CBTC 11 debt, (iii) the mortgage for CBTC
36 was extended with a maturity date of November 2016, and (iv) the mortgage for CBTC 38 was extended with a maturity date of February
2017.
Exhibit 99.2
CAMPUS CREST COMMUNITIES, INC.
INDEX TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Index to Unaudited Pro Forma Condensed
Consolidated Financial Statements |
F-1 |
| Unaudited Pro Forma Condensed Consolidated Financial Statements |
F-2 |
| Unaudited Pro Forma Condensed Consolidated Balance Sheet |
F-4 |
| Unaudited Pro Forma Condensed Consolidated Statement of Operation |
F-5 |
| Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements |
F-6 |
Campus
Crest Communities, Inc.
unaudited
pro forma condensed consolidated financial statements
On February
26, 2013, we and subsidiaries of our Operating Partnership entered into a purchase and sale agreement (the “Initial Purchase
Agreement”) with the members of Copper Beech Townhome Communities, LLC (“CBTC”) and Copper Beech Townhome Communities
(PA), LLC (“CBTC PA” and, together with CBTC, “Copper Beech” or the “Sellers”). Pursuant to
the terms of the Initial Purchase Agreement we initially acquired a 48.0% interest in a portfolio of 35 student housing properties
and three other entities (the “Copper Beech Portfolio”), for an initial purchase price of approximately $230.2 million.
Subsequent to the Initial Purchase Agreement, the Company formed a variable interest entity (“VIE”) with the Sellers
to develop, construct and manage the Copper Beech at Ames student housing property. The Company concluded that it was the primary
beneficiary of Copper Beech at Ames as the Company funded all of the equity of the VIE, while holding only a 48% interest in the
VIE. On January 30, 2015, the Company and certain of its affiliates completed the acquisition (the “2015 Closing”)
of (i) substantially all of the Sellers’ remaining interests in 27 student housing properties, two undeveloped land parcels
and a corporate office building and (ii) the Sellers’ remaining interests in Copper Beech at Ames, Iowa, pursuant to that
certain Second Amendment (the “Second Amendment”) to the Initial Purchase Agreement. Pursuant to the Second Amendment,
Campus Crest assumed the remaining equity interest in Copper Beech at Ames. Accordingly, the noncontrolling interest in Copper
Beech at Ames included in the 2014 results of Campus Crest has been removed in the pro forma results.
Pursuant to the terms
of the Second Amendment, we agreed to acquire the Sellers’ remaining interests in each of the properties comprising the Copper
Beech Portfolio other than Copper Beech Kalamazoo Phase 1, Copper Beech Kalamazoo Phase 2, Copper Beech Morgantown, Copper Beech
Harrisonburg, Copper Beech Greenville and Copper Beech Parkway. Following the consummation of the 2015 Closing, we hold a 100%
interest in Copper Beech at Ames and the following interests in the Copper Beech Portfolio:
| · | 100% interest in 25 of the student housing
properties; |
| · | 100% interest in two undeveloped land
parcels and one corporate office building; |
| · | 86% interest in one student housing property; |
| · | 87% interest in one student housing property; |
| · | 48% interest in 7 student housing properties;
and |
| · | no ownership interest in one of the student
housing properties. |
We expect to complete the acquisition of
the Sellers’ interests in two of the properties in the Copper Beech Portfolio in which we currently hold a 48% interest –
Copper Beech San Marcos Phase 1 and Copper Beech IUP Buy – and the disposition of our current 48% interest in Copper Beech
Kalamazoo Phase 2 at such time as we obtain the requisite lender consents. We expect to obtain all such consents and to complete
these acquisitions and this disposition on or before the end of the second quarter of 2015 for the $1.4 million in cash and approximately
2.0 million in OP Units noted in the next paragraph (the date of completion of such acquisitions is referred to herein as the “Second
Closing Date”).
As consideration for
the additional interests acquired in the 2015 Closing, we paid to the Sellers aggregate cash consideration of approximately $58.9
million and the Operating Partnership issued to the Sellers an aggregate of approximately 10.4 million limited partnership units
of the Operating Partnership (“OP Units”). As consideration for the second closing, we will pay $1.4 million in cash
and issue approximately 2.0 million in OP Units, on the Second Closing Date, which is expected to occur by the end of the second
quarter of 2015. Additionally, we surrendered all of our previous 48% ownership interest in one of the properties in the Copper
Beech Portfolio as part of the terms of the Second Amendment, and we anticipate surrending all of our 48% interest in Copper Beech
Kalamazoo Phase 2 by the end of the second quarter of 2015.
The accompanying unaudited
pro forma condensed consolidated balance sheet presents our historical financial information as of December 31, 2014, as adjusted
for the acquisition of the Copper Beech Portfolio, as if the transaction had occurred on December 31, 2014. The accompanying unaudited
pro forma condensed consolidated statement of operations for the year ended December 31, 2014 is presented as if the transaction
occurred on January 1, 2014.
These Unaudited Pro
Forma Condensed Consolidated Financial Statements are prepared for informational purposes only and are based on assumptions and
estimates considered appropriate by us. However, they are not necessarily indicative of what our consolidated financial condition
or results of operations actually would have been assuming the Copper Beech Portfolio acquisition had occurred as of the dates
indicated, nor do they purport to represent the consolidated financial position or results of operations for future periods. The
final valuation of assets, liabilities, noncontrolling interests and OP Units, timing of completion of the Copper Beech Portfolio
acquisition and other changes to the Copper Beech Portfolio's tangible and intangible assets and liabilities that occur prior to
completion of the Copper Beech Portfolio acquisition, as well as the ability to obtain lender consents or satisfy other closing
conditions, could cause material differences in the information presented.
This unaudited pro forma condensed consolidated
information should be read in conjunction with the historical financial information and notes thereto contained in our Annual Report
on Form 10-K for the year ended December 31, 2014, filed on April 1, 2015.
The unaudited pro
forma condensed combined financial information has been prepared using the acquisition method of accounting for business combinations
under accounting principles generally accepted in the United States. The unaudited pro forma adjustments, including the adjustments
related to the fair values of the assets acquired, liabilities assumed, noncontrolling interests, and OP Units are provisional
because the appraisals and valuation analysis have not been completed, and have been made solely for the purpose of providing unaudited
pro forma condensed combined financial information.
A final determination
of the acquisition consideration and fair values of the Sellers’ assets acquired, liabilities assumed, and noncontrolling
interest will be based on the actual assets and liabilities that existed as of the date of the completion of the acquisition,
which was January 30, 2015 for the 2015 Closing and a point in the second quarter for the Second Closing Date. Consequently, provisional
fair values of the assets acquired, liabilities assumed, noncontrolling interests, and OP Units could change from those used in
the unaudited pro forma condensed consolidated financial statements presented below and could result in a change in amortization
of acquired intangible assets and amortization or accretion of other fair value adjustments and the bargain purchase gain.
Campus
Crest Communities, Inc.
unaudited
pro forma condensed consolidated BALANCE SHEET
December
31, 2014
(In thousands)
| | |
Campus Crest | | |
CB Portfolio | | |
Pro Forma | |
| |
| |
| | |
As Reported | | |
Acquisition | | |
Adjustments | |
| |
Pro Forma | |
| | |
December 31, | | |
December 31, | | |
December 31, | |
| |
December 31, | |
| | |
2014 | | |
2014 | | |
2014 | |
| |
2014 | |
| ASSETS | |
| | |
(Unaudited) | | |
(Unaudited) | |
| |
(Unaudited) | |
| Investment in real estate, net: | |
| | |
| | |
| |
| |
| |
| Student housing properties | |
$ | 935,962 | | |
$ | 410,847 | | |
$ | 185,020 | |
(a) | |
$ | 1,531,829 | |
| Accumulated depreciation | |
| (128,121 | ) | |
| (128,129 | ) | |
| 128,129 | |
(a) | |
| (128,121 | ) |
| Land and properties held for sale | |
| 38,105 | | |
| 633 | | |
| 617 | |
(a) | |
| 39,355 | |
| Land held for investment | |
| 7,413 | | |
| - | | |
| - | |
| |
| 7,413 | |
| Investment in real estate, net | |
| 853,359 | | |
| 283,351 | | |
| 313,766 | |
| |
| 1,450,476 | |
| Investment in unconsolidated entities | |
| 259,740 | | |
| - | | |
| (170,194 | ) |
(b) | |
| 89,546 | |
| Cash and cash equivalents | |
| 15,240 | | |
| 5,758 | | |
| (14,300 | ) |
(c) | |
| 6,698 | |
| Restricted cash | |
| 5,429 | | |
| 4,042 | | |
| - | |
| |
| 9,471 | |
| Student receivables, net of allowance | |
| 1,587 | | |
| 1,095 | | |
| - | |
| |
| 2,682 | |
| Cost and earnings in excess of construction billings | |
| 3,887 | | |
| - | | |
| - | |
| |
| 3,887 | |
| Other assets, net | |
| 37,569 | | |
| 1,262 | | |
| (1,095 | ) |
(d) | |
| 37,736 | |
| In-place lease intangible | |
| - | | |
| - | | |
| 29,823 | |
(e) | |
| 29,823 | |
| Trademark intangible | |
| - | | |
| - | | |
| 5,000 | |
(f) | |
| 5,000 | |
| Total assets | |
$ | 1,176,811 | | |
$ | 295,508 | | |
$ | 163,000 | |
| |
$ | 1,635,319 | |
| | |
| | | |
| | | |
| | |
| |
| | |
| LIABILITIES AND EQUITY | |
| | | |
| | | |
| | |
| |
| | |
| Liabilities: | |
| | | |
| | | |
| | |
| |
| | |
| Mortgage and construction loans | |
$ | 300,673 | | |
$ | 285,068 | | |
$ | 14,862 | |
(g) | |
$ | 600,603 | |
| Line of credit and other debt | |
| 317,746 | | |
| 6,831 | | |
| 46,000 | |
(c) | |
| 370,577 | |
| Accounts payable and accrued expenses | |
| 53,816 | | |
| 6,723 | | |
| (747 | ) |
(h) | |
| 59,792 | |
| Construction billings in excess of cost and earnings | |
| 481 | | |
| - | | |
| - | |
| |
| 481 | |
| Other liabilities | |
| 22,092 | | |
| 2,820 | | |
| 2,118 | |
(m) | |
| 27,030 | |
| Total liabilities | |
| 694,808 | | |
| 301,442 | | |
| 62,233 | |
| |
| 1,058,483 | |
| Commitments and contingencies | |
| | | |
| | | |
| | |
| |
| | |
| Equity: | |
| | | |
| | | |
| | |
| |
| | |
| Preferred stock, 8.00% Series A Cumulative Redeemable | |
| 61 | | |
| - | | |
| - | |
| |
| 61 | |
| Common stock | |
| 648 | | |
| - | | |
| - | |
| |
| 648 | |
| Additional common and preferred paid-in capital | |
| 773,998 | | |
| 7,061 | | |
| (1,421 | ) |
(l), (n) | |
| 779,638 | |
| Accumulated deficit and distributions | |
| (298,818 | ) | |
| (15,128 | ) | |
| 17,501 | |
(j),(k),(m) | |
| (296,445 | ) |
| Accumulated other comprehensive loss | |
| (2,616 | ) | |
| - | | |
| - | |
| |
| (2,616 | ) |
| Total Campus Crest Communities, Inc. equity | |
| 473,273 | | |
| (8,067 | ) | |
| 16,080 | |
| |
| 481,286 | |
| Noncontrolling interests | |
| 8,730 | | |
| 2,133 | | |
| 84,687 | |
(i),(l),(n) | |
| 95,550 | |
| Total equity | |
| 482,003 | | |
| (5,934 | ) | |
| 100,767 | |
| |
| 576,836 | |
| Total liabilities and equity | |
$ | 1,176,811 | | |
$ | 295,508 | | |
$ | 163,000 | |
| |
$ | 1,635,319 | |
Campus
Crest Communities, Inc.
unaudited
pro forma condensed consolidated STATEMENT OF OPERATIONs
FOR
THE YEAR ENDED December 31, 2014
(In thousands, except
per share amounts)
| | |
Campus Crest | | |
CB Portfolio | | |
Pro Forma | | |
| |
| | |
As Reported | | |
Acquisition | | |
Adjustments | | |
Pro Forma | |
| | |
Year Ended | | |
Year Ended | | |
Year Ended | | |
Year Ended | |
| | |
December 31, | | |
December 31, | | |
December 31, | | |
December 31, | |
| | |
2014 | | |
2014 | | |
2014 | | |
2014 | |
| Revenues: | |
| | |
| | |
(Unaudited) | | |
(Unaudited) | |
| Student housing rental | |
$ | 101,724 | | |
$ | 56,928 | | |
$ | - | | |
$ | 158,652 | |
| Student housing services | |
| 3,768 | | |
| 4,581 | | |
| - | | |
| 8,349 | |
| Property management services | |
| 1,249 | | |
| - | | |
| - | | |
| 1,249 | |
| Total revenues | |
| 106,741 | | |
| 61,509 | | |
| - | | |
| 168,250 | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Student housing operations | |
| 47,154 | | |
| 24,165 | | |
| - | | |
| 71,319 | |
| General and administrative | |
| 14,303 | | |
| 1,877 | | |
| - | | |
| 16,180 | |
| Severance | |
| 6,159 | | |
| - | | |
| - | | |
| 6,159 | |
| Impairment of land and pre-development costs | |
| 31,927 | | |
| - | | |
| - | | |
| 31,927 | |
| Write-off of corporate other assets | |
| 15,110 | | |
| - | | |
| - | | |
| 15,110 | |
| Transaction costs | |
| 3,046 | | |
| - | | |
| (420 | )(6) | |
| 2,626 | |
| Ground leases | |
| 477 | | |
| - | | |
| - | | |
| 477 | |
| Depreciation and amortization | |
| 29,426 | | |
| - | | |
| 53,422 | (1) | |
| 82,848 | |
| Total operating expenses | |
| 147,602 | | |
| 26,042 | | |
| 53,002 | | |
| 226,646 | |
| Equity in losses of unconsolidated entities | |
| (5,510 | ) | |
| - | | |
| 640 | (2) | |
| (4,870 | ) |
| Impairment of unconsolidated entities | |
| (57,789 | ) | |
| - | | |
| - | | |
| (57,789 | ) |
| Effect of not exercising Copper Beech purchase option | |
| (33,375 | ) | |
| - | | |
| - | | |
| (33,375 | ) |
| Operating income (loss) | |
| (137,535 | ) | |
| 35,467 | | |
| (52,362 | ) | |
| (154,430 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Nonoperating income (expense): | |
| | | |
| | | |
| | | |
| | |
| Interest expense, net | |
| (16,156 | ) | |
| (16,338 | ) | |
| 3,397 | (3) | |
| (29,097 | ) |
| Other income (expense) | |
| 42 | | |
| - | | |
| - | | |
| 42 | |
| Total nonoperating expense, net | |
| (16,114 | ) | |
| (16,338 | ) | |
| 3,397 | | |
| (29,055 | ) |
| Net income (loss) before income tax expense | |
| (153,649 | ) | |
| 19,129 | | |
| (48,965 | ) | |
| (183,485 | ) |
| Income tax expense | |
| (731 | ) | |
| - | | |
| - | | |
| (731 | ) |
| Income (loss) from continuing operations | |
| (154,380 | ) | |
| 19,129 | | |
| (48,965 | ) | |
| (184,216 | ) |
| Net income (loss) attributable to noncontrolling interests | |
| (1,233 | ) | |
| - | | |
| (30,032 | )(4) | |
| (31,265 | ) |
| Dividends on preferred stock | |
| 12,200 | | |
| - | | |
| - | | |
| 12,200 | |
| | |
$ | (165,347 | ) | |
$ | 19,129 | | |
$ | (18,933 | ) | |
$ | (165,151 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) attributable to common stockholders | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | (2.54 | ) | |
| | | |
| | | |
$ | (2.13 | ) |
| Diluted | |
$ | (2.54 | ) | |
| | | |
| | | |
$ | (2.13 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted-average common shares outstanding: | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 65,102 | | |
| | | |
| | (5) | |
| 77,502 | |
| Diluted | |
| 65,102 | | |
| | | |
| | (5) | |
| 77,502 | |
See accompanying notes to unaudited Pro Forma Condensed Consolidated
Financial Statements.
Campus
Crest Communities, Inc.
NOTES
TO unaudited pro forma condensed
consolidated
financial statements
1. Basis of Pro Forma Presentation
Campus Crest Communities,
Inc., together with its subsidiaries, referred to herein as the “Company” and “Campus Crest,” is a self-managed
and self-administered real estate investment trust (“REIT”) focused on owning and managing a high-quality student housing
portfolio located close to college campuses. The Company currently owns the sole general partner interest and owns limited partner
interests in Campus Crest Communities Operating Partnership, LP (the “Operating Partnership”). The Company holds substantially
all of its assets and conducts substantially all of its business, through the Operating Partnership.
On February 26, 2013,
we and subsidiaries of our Operating Partnership entered into a purchase and sale agreement (the “Initial Purchase Agreement”)
with the members of Copper Beech Townhome Communities, LLC (“CBTC”) and Copper Beech Townhome Communities (PA), LLC
(“CBTC PA” and, together with CBTC, “Copper Beech” or the “Sellers”). Pursuant to the terms
of the Initial Purchase Agreement we initially acquired a 48.0% interest in a portfolio of 35 student housing properties and three
other entities (the “Copper Beech Portfolio”), for an initial purchase price of approximately $230.2 million. On January
30, 2015, the Company and certain of its affiliates completed the acquisition (the “2015 Closing”) of (i) substantially
all of the Sellers’ remaining interests in 27 student housing properties, two undeveloped land parcels and a corporate office
building (the “Acquired Copper Beech Portfolio”) and (ii) the Sellers’ remaining interests in Copper Beech at
Ames, Iowa, pursuant to that certain Second Amendment (the “Second Amendment”) to the Initial Purchase Agreement.
Pursuant to the terms
of the Second Amendment, we agreed to acquire the Sellers’ remaining interests in each of the properties comprising the Copper
Beech Portfolio other than Copper Beech Kalamazoo Phase 1, Copper Beech Kalamazoo Phase 2, Copper Beech Morgantown, Copper Beech
Harrisonburg, Copper Beech Greenville and Copper Beech Parkway. Following the consummation of the 2015 Closing, we hold a 100%
interest in 25 of the student housing properties and three additional properties in the Acquired Copper Beech Portfolio, an 86%
interest in one property in the Acquired Copper Beech Portfolio, an 87% interest in one property in the Acquired Copper Beech Portfolio
and a 48% interest in 7 of the properties in the Copper Beech Portfolio, and have a 100% interest in Copper Beech at Ames, Iowa.
Additionally, we surrendered our all of our previous 48% ownership interest in one of the properties in the Copper Beech Portfolio
as part of the terms of the Second Amendment.
Subsequent to the
Initial Purchase Agreement, the Company formed a variable interest entity (“VIE”) with the Sellers to develop, construct
and manage the Copper Beech at Ames student housing property. The Company concluded that it was the primary beneficiary of Copper
Beech at Ames as the Company funded all of the equity of this VIE, while holding only a 48% interest in the VIE. In connection
with the consummation of the acquisition of additional membership interests in the Copper Beech Portfolio and pursuant to the Second
Amendment, Campus Crest assumed the remaining equity interest in Copper Beech at Ames for no additional consideration. Accordingly,
the noncontrolling interest in Copper Beech at Ames included in the 2014 results of Campus Crest has been removed in the pro forma
results.
We expect to complete
the acquisition of the Sellers’ interests in two of the properties in the Copper Beech Portfolio in which we currently hold
a 48% interest – Copper Beech San Marcos Phase 1 and Copper Beech IUP Buy – and the disposition of our current 48%
interest in Copper Beech Kalamazoo Phase 2 at such time as we obtain the requisite lender consents. We expect to obtain all such
consents and to complete the acquisitions and disposition on or before the end of the second quarter of 2015 (the date of completion
of such acquisitions is referred to herein as the “Second Closing Date”).
As consideration for
the additional interests acquired in the 2015 Closing, we paid to the Sellers aggregate cash consideration of approximately $58.9
million and the Operating Partnership issued to the Sellers an aggregate of approximately 10.4 million limited partnership units
of the Operating Partnership (“OP Units”). The remaining consideration pursuant to the Second Amendment, consisting
of approximately $1.4 million in cash and approximately 2.0 million in OP Units, will be payable to the Sellers on the Second Closing
Date.
Information presented
in unaudited pro forma condensed consolidated balance sheet and statement of operations, prior to purchase accounting and pro
forma adjustments, represents the audited Campus Crest financial information as reported as of and for the year ended December
31, 2014 and the financial information of the Acquired Copper Beech Portfolio as of and for the year ended December 31, 2014.
2. Adjustments to Unaudited Pro Forma
Condensed Consolidated Balance Sheet:
(a) Represents the adjustment
to reflect provisional acquisition accounting adjustments based on estimated fair value to townhome communities, undeveloped land,
and corporate office building recognized as a result of the acquisition including the adjustment to accumulated depreciation.
(b) Represents the adjustment
to remove book value of previously held equity investment in Copper Beech leaving the remaining book value of $48.5 million for
the four properties that we continue to hold a 48% equity ownership.
(c) Represents the adjustment
for net cash consideration paid which totals $60.3 million, of which $14.3 million from cash on hand and $46.0 million from cash
received from borrowing under our line of credit.
(d) Represent the
adjustment to remove deferred financing costs and deferred concessions.
(e) Represents the adjustment
to reflect the provisional acquisition accounting adjustments for the in-place lease intangible assets recognized as a result of
the acquisition with an expected useful life of one year.
(f) Represents the adjustment
to reflect the provisional acquisition accounting adjustments for the trademark intangible asset identified as a result of the
acquisition with an expected indefinite useful life.
(g) Represents the adjustment
to reflect the provisional acquisition accounting adjustments for the fair market value adjustment (premium) to mortgage loans
acquired.
(h) Represents the adjustment
to remove nonrefundable deposits that were treated as deferred revenue.
(i) Represents the provisional
fair value of purchase price consideration from the issuance of approximately 12.4 million of the Company’s OP Units, for
both the first (completed) and second (pending completion in the second quarter of 2015) closings, based on the Company’s
stock price of $6.89 per share on the date of initial closing, January 30, 2015 to be included in noncontrolling interests. See
table below for calculation of total equity consideration given (amounts in thousands, except per share data):
| | |
| |
| Number of OP units issued | |
| 12,400 | |
| Estimated issuance price, per share | |
$ | 6.89 | |
| Gross value of units issued | |
$ | 85,436 | |
(j) Represents the elimination
of Copper Beech subsidiary equity accounts, as appropriate.
(k) Represents a net equity
adjustment of $4.5 million to recognize the bargain purchase gain generated as a result of the consideration paid being less than
the fair value of net assets acquired and liabilities assumed. The pro forma purchase price includes cash consideration paid, OP
units issued and value of prior consideration paid, as deemed appropriate given the nature, timing and structure of the acquisition
(the amount of equity issued is undiscounted). The following table summarizes the calculation of the preliminary purchase price
and the allocation of the purchase price to the estimated fair value of the assets and liabilities assumed (in thousands, except
per share data):
| | |
| | |
| |
| Cash paid, net of cash acquired | |
| | | |
$ | 54,542 | |
| Prior investment consideration given | |
| | | |
| 170,194 | |
| OP units issued (12.4 million at $6.89 per share) | |
| | | |
| 85,436 | |
| Total pro forma purchase price | |
| | | |
$ | 310,172 | |
| | |
| | | |
| | |
| Fair value of assets acquired: | |
| | | |
| | |
| Student housing properties | |
$ | 595,867 | | |
| | |
| Land held for sale | |
| 1,250 | | |
| | |
| Restricted cash | |
| 4,042 | | |
| | |
| Student receivables, net of allowance for doubtful accounts | |
| 1,095 | | |
| | |
| Other assets, net | |
| 167 | | |
| | |
| In-place lease intangible | |
| 29,823 | | |
| | |
| Trademark intangible | |
| 5,000 | | |
| | |
| Total assets | |
$ | 637,244 | | |
| | |
| Fair value of liabilities assumed: | |
| | | |
| | |
| Mortgage and construction loans | |
$ | 299,930 | | |
| | |
| Line of credit and other debt | |
| 6,831 | | |
| | |
| Accounts payable and accrued expenses | |
| 5,976 | | |
| | |
| Other liabilities | |
| 2,820 | | |
| | |
| Total liabilities | |
| 315,557 | | |
| | |
| Net assets acquired | |
| | | |
| 321,687 | |
| | |
| | | |
| | |
| Less: fair value of noncontrolling interest in entities acquired | |
| | | |
| (7,023 | ) |
| | |
| | | |
| | |
| Bargain purchase gain | |
| | | |
$ | 4,492 | |
(l) Represents the adjustment
to record non-controlling interest at fair market value for the two properties that we hold 86% and 87% respectively.
(m) Represents the adjustment
for estimated direct transaction costs of approximately $2.5 million, of which $0.4 million was incurred during 2014.
(n) Adjustment reflects removal
of noncontrolling interest of Copper Beech at Ames of $5.6 milllion.
3. Adjustments to Unaudited Pro Forma Condensed Consolidated
Statement of Operations:
1) Represents various
net changes in depreciation and amortization as described below (in thousands):
| Estimated depreciation of acquired property | |
| 23,599 | |
| In-place lease intangible amortization | |
| 29,823 | |
| | |
| 53,422 | |
(2) Represents removal of equity
in losses of $0.6 million of the previously unconsolidated Copper Beech entities leaving the equity in earnings of the four CB
properties that the Company will continue to hold a 48% equity interest.
(3) Represents
amortization of the fair value of debt adjustment (premium) of $4.6 million from the CB mortgage loans acquired and $1.2
million of additional interest expense for the $46.0 million of borrowings under our line of credit to fund the
transaction.
(4) Represents removal of $148
noncontrolling interest in CB @ Ames, plus the following incremental change in net income (loss) attributable to noncontrolling
interests as described below (in thousands):
| Removal of net loss attributable to noncontrolling interest | |
| |
| of OP units issued | |
| 29,474 | |
| Incremental decrease in acquired property depreciation | |
| (2 | ) |
| In-place lease intangible amortization | |
| 412 | |
| Removal of net income attributable to noncontrolling interest in | |
| | |
| Copper Beech at Ames | |
| 148 | |
| | |
| 30,032 | |
(5)
Represents basic and diluted weighted-average common shares outstanding adjusted for additional 12.4 million OP units issued as
part of the acquisition.
(6) Represents adjustment to remove portion of transaction
costs incurred during 2014, related to the Copper Beech acquisition.
4. Estimated useful lives of assets acquired:
The following is a summary of the estimated useful lives of
properties and intangible assets acquired as part of the business combination:
| · | Student
housing properties: |
| o | Site improvements: Range from 3 to 15 years |
| o | Furniture and fixtures: Range from 2 to 6 years |
| · | In-place lease intangible: 1 year |
| · | Trademark: indefinite life |
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