UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended March 31, 2015
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to
Commission
file number: 001-34872
CAMPUS
CREST COMMUNITIES, INC.
(Exact
name of registrant as specified in its charter)
Maryland
(State or other
jurisdiction of
incorporation
or organization) |
|
27-2481988
(I.R.S. Employer
Identification No.) |
|
|
|
2100 Rexford Road, Suite 414, Charlotte,
NC
(Address of principal executive offices) |
|
28211
(Zip Code) |
(704) 496-2500
(Registrant's
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
¨
No x
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
x
No ¨
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.
Large accelerated filer x |
|
Accelerated filer ¨ |
|
Non-accelerated filer ¨ |
|
Smaller reporting company ¨ |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
¨
No x
Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at July 21, 2015 |
Common Stock, $0.01 par value per share |
|
64,782,007 shares |
CAMPUS
CREST COMMUNITIES, INC.
FORM
10-Q
TABLE
OF CONTENTS
PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
CAMPUS
CREST COMMUNITIES, INC.
CONSOLIDATED
BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
Investment in real estate, net: | |
| | | |
| | |
Student housing properties ($32,875 related to VIE as of December 31, 2014) | |
$ | 1,506,297 | | |
$ | 935,962 | |
Accumulated depreciation (($318) related to VIE as of December 31, 2014) | |
| (138,830 | ) | |
| (128,121 | ) |
Land and property held for sale | |
| 13,588 | | |
| 37,163 | |
Land held for investment | |
| 7,413 | | |
| 7,413 | |
Investment in real estate, net | |
| 1,388,468 | | |
| 852,417 | |
Investment in unconsolidated entities | |
| 93,783 | | |
| 259,740 | |
Cash and cash equivalents ($670 related to VIE as of December 31, 2014) | |
| 35,260 | | |
| 15,240 | |
Restricted cash | |
| 8,045 | | |
| 5,429 | |
Student receivables, net of allowance for doubtful accounts of $1,191 and $459, respectively ($36, net of allowance of $9 related to VIE as of December 31, 2014) | |
| 2,857 | | |
| 1,587 | |
Cost and earnings in excess of construction billings | |
| 618 | | |
| 3,887 | |
Intangible assets, net | |
| 21,030 | | |
| - | |
Other assets ($236 related to VIE as of December 31, 2014) | |
| 34,150 | | |
| 35,742 | |
Total assets | |
$ | 1,584,211 | | |
$ | 1,174,042 | |
| |
| | | |
| | |
LIABILITIES AND EQUITY | |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Mortgage and construction loans ($21,170 related to VIE as of December 31, 2014) | |
$ | 566,495 | | |
$ | 300,673 | |
Line of credit and other debt | |
| 367,976 | | |
| 317,746 | |
Accounts payable and accrued expenses ($534 related to VIE as of December 31, 2014) | |
| 36,562 | | |
| 53,816 | |
Construction billings in excess of cost and earnings | |
| - | | |
| 481 | |
Other liabilities ($607 related to VIE as of December 31, 2014) | |
| 47,071 | | |
| 22,092 | |
Total liabilities | |
| 1,018,104 | | |
| 694,808 | |
Commitments and contingencies | |
| | | |
| | |
Equity: | |
| | | |
| | |
Preferred stock, $0.01 par value, 50,000,000 shares
authorized: 8.00% Series A Cumulative Redeemable Preferred Stock (liquidation preference $25.00 per share), 6,100,000 shares
issued and outstanding at March 31, 2015 and December 31, 2014 | |
| 61 | | |
| 61 | |
Common stock, $0.01 par value, 500,000,000 and 500,000,000 shares authorized, 64,720,361 and 64,742,713 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | |
| 648 | | |
| 648 | |
Additional common and preferred paid-in capital | |
| 780,665 | | |
| 773,998 | |
Accumulated deficit and distributions | |
| (288,726 | ) | |
| (301,566 | ) |
Accumulated other comprehensive loss | |
| (3,174 | ) | |
| (2,616 | ) |
Total Campus Crest Communities, Inc. stockholders' equity | |
| 489,474 | | |
| 470,525 | |
Noncontrolling interests | |
| 76,633 | | |
| 8,709 | |
Total equity | |
| 566,107 | | |
| 479,234 | |
Total liabilities and equity | |
$ | 1,584,211 | | |
$ | 1,174,042 | |
See accompanying notes to consolidated financial
statements.
CAMPUS
CREST COMMUNITIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Revenues: | |
| | | |
| | |
Student housing rental | |
$ | 38,790 | | |
$ | 23,635 | |
Student housing services | |
| 1,310 | | |
| 973 | |
Property management services | |
| 229 | | |
| 103 | |
Total revenues | |
| 40,329 | | |
| 24,711 | |
Operating expenses: | |
| | | |
| | |
Student housing operations | |
| 17,204 | | |
| 10,613 | |
General and administrative | |
| 8,038 | | |
| 3,506 | |
Severance | |
| 508 | | |
| - | |
Write-off of other assets | |
| 769 | | |
| - | |
Transaction costs | |
| 1,492 | | |
| 585 | |
Ground leases | |
| 120 | | |
| 117 | |
Depreciation and amortization | |
| 19,756 | | |
| 6,980 | |
Total operating expenses | |
| 47,887 | | |
| 21,801 | |
Equity in earnings (losses) of unconsolidated entities | |
| (2,149 | ) | |
| 319 | |
Operating income (loss) | |
| (9,707 | ) | |
| 3,229 | |
| |
| | | |
| | |
Nonoperating income (expense): | |
| | | |
| | |
Interest expense, net | |
| (7,788 | ) | |
| (3,376 | ) |
Gain on purchase of Copper Beech | |
| 21,642 | | |
| - | |
Gain on sale of land and unconsolidated entities | |
| 7,748 | | |
| - | |
Other income (expense) | |
| (55 | ) | |
| 66 | |
Total nonoperating income (expense), net | |
| 21,547 | | |
| (3,310 | ) |
Net income (loss) before income tax benefit | |
| 11,840 | | |
| (81 | ) |
Income tax benefit | |
| - | | |
| 190 | |
Income from continuing operations | |
| 11,840 | | |
| 109 | |
Income (loss) from discontinued operations | |
| (1,157 | ) | |
| 939 | |
Net income | |
| 10,683 | | |
| 1,048 | |
Net loss attributable to noncontrolling interests | |
| (2,157 | ) | |
| (15 | ) |
Dividends on preferred stock | |
| 3,050 | | |
| 3,050 | |
Net income (loss) attributable to common stockholders | |
$ | 9,790 | | |
$ | (1,987 | ) |
| |
| | | |
| | |
Per share data - basic | |
| | | |
| | |
Income (loss) from continuing operations attributable to common stockholders | |
$ | 0.17 | | |
$ | (0.04 | ) |
(Loss) Income from discontinued operations attributable to common shareholders | |
| (0.02 | ) | |
| 0.01 | |
Net income (loss) per share attributable to common stockholders | |
$ | 0.15 | | |
$ | (0.03 | ) |
| |
| | | |
| | |
Per share data - diluted | |
| | | |
| | |
Income (loss) from continuing operations attributable to common stockholders | |
$ | 0.15 | | |
$ | (0.04 | ) |
Income (loss) from discontinued operations attributable to common shareholders | |
| (0.01 | ) | |
| 0.01 | |
Net income (loss) per share attributable to common stockholders | |
$ | 0.14 | | |
$ | (0.03 | ) |
| |
| | | |
| | |
Weighted-average common shares outstanding: | |
| | | |
| | |
Basic | |
| 64,720 | | |
| 64,495 | |
Diluted | |
| 78,686 | | |
| 64,929 | |
CAMPUS CREST COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS) (CONTINUED)
(In thousands, except per share data)
(Unaudited)
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Consolidated statements of comprehensive income (loss): | |
| | | |
| | |
Net income | |
$ | 10,683 | | |
$ | 1,048 | |
Foreign currency translation | |
| (651 | ) | |
| (992 | ) |
Comprehensive income | |
| 10,032 | | |
| 56 | |
Net income (loss) attributable to noncontrolling interests | |
| (2,157 | ) | |
| (15 | ) |
Foreign currency translation attributable to noncontrolling interest | |
| (93 | ) | |
| 7 | |
Dividends on preferred stock | |
| 3,050 | | |
| 3,050 | |
Comprehensive income (loss) attributable to common stockholders | |
$ | 9,232 | | |
$ | (2,986 | ) |
See accompanying notes to consolidated financial
statements.
CAMPUS CREST COMMUNITIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
(In thousands)
(Unaudited)
| |
Series A | | |
| | |
Additional | | |
| | |
Accumulated | | |
| | |
| | |
| |
| |
Cumulative | | |
| | |
Common and | | |
Accumulated | | |
Other | | |
Total | | |
| | |
| |
| |
Redeemable | | |
Common | | |
Preferred Paid- | | |
Deficit and | | |
Comprehensive | | |
Stockholders' | | |
Noncontrolling | | |
Total | |
| |
Preferred
Stock | | |
Stock | | |
in
Capital | | |
Distributions | | |
Loss | | |
Equity | | |
Interests | | |
Equity | |
Balance at December 31, 2014 | |
$ | 61 | | |
$ | 648 | | |
$ | 773,998 | | |
$ | (301,566 | ) | |
$ | (2,616 | ) | |
$ | 470,525 | | |
$ | 8,709 | | |
$ | 479,234 | |
Amortization of restricted
stock awards and operating partnership units | |
| - | | |
| - | | |
| 1,014 | | |
| - | | |
| - | | |
| 1,014 | | |
| - | | |
| 1,014 | |
Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| (558 | ) | |
| (558 | ) | |
| (93 | ) | |
| (651 | ) |
Non-controlling interest
in Copper Beech at Ames | |
| - | | |
| - | | |
| 5,653 | | |
| - | | |
| - | | |
| 5,653 | | |
| (5,653 | ) | |
| - | |
Non-controlling interest
-OP units | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 71,344 | | |
| 71,344 | |
Non-controlling interest
-CBTC 8 and 9 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,483 | | |
| 4,483 | |
Net income (loss) | |
| - | | |
| - | | |
| - | | |
| 12,840 | | |
| - | | |
| 12,840 | | |
| (2,157 | ) | |
| 10,683 | |
Balance at March 31,
2015 | |
$ | 61 | | |
$ | 648 | | |
$ | 780,665 | | |
$ | (288,726 | ) | |
$ | (3,174 | ) | |
$ | 489,474 | | |
$ | 76,633 | | |
$ | 566,107 | |
See accompanying notes to consolidated
financial statements.
CAMPUS CREST COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Operating activities: | |
| | | |
| | |
Net income | |
$ | 10,683 | | |
$ | 1,048 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 19,756 | | |
| 6,980 | |
Amortization of fair value of debt adjustments | |
| (1,015 | ) | |
| - | |
Write-off of other assets | |
| 769 | | |
| - | |
Amortization of deferred financing costs and debt discount | |
| 788 | | |
| 665 | |
Gain on sale of land and unconsolidated entities | |
| (7,748 | ) | |
| - | |
Loss on disposal of assets | |
| 7 | | |
| - | |
Proceeds received for business interruption insurance | |
| - | | |
| 725 | |
Provision for bad debts | |
| 741 | | |
| 403 | |
Gain on purchase of Copper Beech | |
| (21,642 | ) | |
| - | |
Equity in (earnings) losses of unconsolidated entities | |
| 2,149 | | |
| (319 | ) |
Distributions of earnings from unconsolidated entities | |
| 360 | | |
| - | |
Share based compensation expense | |
| 1,014 | | |
| 677 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Restricted cash | |
| (283 | ) | |
| (216 | ) |
Student receivables | |
| (830 | ) | |
| (396 | ) |
Construction billings | |
| 2,788 | | |
| 1,730 | |
Accounts payable and accrued expenses | |
| (2,925 | ) | |
| (6,657 | ) |
Other | |
| 7,917 | | |
| (2,356 | ) |
Net cash provided by operating activities | |
| 12,529 | | |
| 2,284 | |
Investing activities: | |
| | | |
| | |
Investments in developed properties | |
| (12,587 | ) | |
| (29,016 | ) |
Proceeds received from sales of land | |
| 28,334 | | |
| - | |
Insurance proceeds received for damaged assets | |
| 375 | | |
| 590 | |
Investments in student housing properties | |
| (1,339 | ) | |
| (1,295 | ) |
Acquisition of Copper Beech, net of cash acquired of $5,074 | |
| (53,814 | ) | |
| - | |
Investments in unconsolidated entities | |
| (1,199 | ) | |
| (41,382 | ) |
Acquisition of previously unconsolidated entities | |
| - | | |
| (7,661 | ) |
Proceeds received from sales of previously unconsolidated entities | |
| 978 | | |
| - | |
Capital distributions from unconsolidated entities | |
| 154 | | |
| 4,333 | |
Corporate capital expenditures | |
| (647 | ) | |
| (1,912 | ) |
Proceeds received from the sale of corporate aircraft | |
| 3,811 | | |
| - | |
Change in restricted cash | |
| 442 | | |
| 12,084 | |
Net cash used in investing activities | |
| (35,492 | ) | |
| (64,259 | ) |
Financing activities: | |
| | | |
| | |
Proceeds from mortgage and construction loans | |
| 23,825 | | |
| 2,001 | |
Repayments of mortgage and construction loans | |
| (16,559 | ) | |
| (608 | ) |
Proceeds from line of credit and other debt | |
| 46,000 | | |
| 72,500 | |
Repayments of line of credit and other debt | |
| (154 | ) | |
| (15,300 | ) |
Debt issuance costs | |
| (1,213 | ) | |
| (575 | ) |
Dividends paid to common stockholders | |
| (5,830 | ) | |
| (10,643 | ) |
Dividends paid to preferred stockholders | |
| (3,050 | ) | |
| (3,050 | ) |
Dividends paid to noncontrolling interest | |
| (36 | ) | |
| (72 | ) |
Net cash provided by financing activities | |
| 42,983 | | |
| 44,253 | |
Net change in cash and cash equivalents | |
| 20,020 | | |
| (17,722 | ) |
Cash and cash equivalents at beginning of period | |
| 15,240 | | |
| 32,054 | |
Cash and cash equivalents at end of period | |
$ | 35,260 | | |
$ | 14,332 | |
CAMPUS CREST COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(In thousands)
(Unaudited)
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for interest, net of amounts capitalized | |
$ | 9,336 | | |
$ | 3,357 | |
Cash paid for income taxes | |
| - | | |
| 376 | |
| |
| | | |
| | |
Non-cash investing and financing activity: | |
| | | |
| | |
Common and preferred stock dividends declared but not paid | |
| - | | |
| 13,763 | |
Assumption of mortgage, construction loans and other debt related to purchase of previously unconsolidated entities | |
| 263,786 | | |
| 16,822 | |
Change in non-controlling interests resulting from ownership change in Copper Beech at Ames | |
| 5,653 | | |
| - | |
Change in receivables related to sales of previously unconsolidated entities | |
| 1,256 | | |
| - | |
Change in insurance proceeds receivable related to damaged assets | |
| (375 | ) | |
| 181 | |
Accounts payable related to capital expenditures | |
| 66 | | |
| 9,112 | |
Increase in other assets and other liabilities for fair value of guarantee obligation and corresponding indemnity related to CBTC 23 | |
| 3,950 | | |
| - | |
Share-based compensation capitalized to development in process | |
| - | | |
| 383 | |
The Company acquired substantially all of the remaining ownership in certain Copper Beech properties for approximately $53.8 million | |
| | | |
| | |
In conjunction with the acquisition liabilities assumed were as follows: | |
| | | |
| | |
Fair value of assets acquired, net of cash acquired of $5,074 | |
$ | 597,961 | | |
$ | - | |
Cash paid, net of cash acquired of $5,074 | |
| (53,814 | ) | |
| - | |
Change in non-controlling interests resulting from ownership change | |
| (75,827 | ) | |
| - | |
Company's ownership interest prior to the acquisition | |
| (167,208 | ) | |
| - | |
Gain recognized on transaction | |
| (21,642 | ) | |
| - | |
Deferred gain | |
| (6,306 | ) | |
| - | |
Liabilities assumed | |
| 273,164 | | |
| - | |
The Company acquired the remaining ownership in HSRE IV for approximately $7.7 million | |
| | | |
| | |
In conjunction with the acquisition liabilities assumed were as follows: | |
| | | |
| | |
Fair value of assets acquired | |
$ | - | | |
$ | 26,854 | |
Cash paid for 80% interest | |
| - | | |
| (7,661 | ) |
Company's ownership interest prior to the acquisition | |
| - | | |
| (1,915 | ) |
Liabilities assumed | |
| - | | |
| 17,278 | |
See accompanying notes to consolidated
financial statements.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and
Description of Business
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.
Campus Crest has made
an election to qualify, and the Company believes it is operating so as to qualify, as a REIT under Sections 856 through 859 of
the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As a REIT, the Company generally will
not be subject to U.S. federal income tax to the extent that the Company meets the organizational and operational requirements
and its distributions equal or exceed 90.0% of REIT taxable income. For all periods subsequent to the REIT election, the Company
has met the organizational and operational requirements and distributions have exceeded net taxable income.
The Company has made
the election to treat Campus Crest TRS Holdings, Inc. ("TRS Holdings"), its wholly-owned subsidiary, as a taxable REIT
subsidiary (“TRS”). TRS Holdings holds the development, construction and management companies (see Note 4 regarding
the discontinuation of operations of the Company’s development and construction services companies) that provide services
to entities in which the Company does not own 100% of the equity interests. As a TRS, the operations of TRS Holdings and its subsidiaries
are generally subject to federal, state and local income and franchise taxes.
As
of March 31, 2015, the Company has ownership interests in 44 operating student housing Grove properties containing approximately
9,000 apartment units and 24,700 beds. Thirty-six of the Company’s operating Grove properties are wholly-owned and eight
of the Company’s operating Grove properties are owned through joint ventures with Harrison Street Real Estate Capital ("HSRE").
Additionally, the Company holds ownership interests in three evo® properties
as joint ventures containing approximately 1,500 units and 3,000 beds, one with HSRE
and Brandywine Realty Trust ("Brandywine"), and two with Beaumont Partners SA (“Beaumont”). The Company also
has one wholly owned redevelopment property containing approximately 170 units and 340 beds. As of March 31, 2015, the Company
held a 100% interest in 26 Copper Beech operating properties with approximately 3,700 units and 10,500 beds and varying ownership
interests in 9 operating properties with approximately 2,400 units and 6,000 beds.
| |
Properties in | |
| |
Operation | |
Wholly owned Grove properties | |
| 36 | |
Joint Venture Grove properties | |
| 8 | |
Total Grove Properties | |
| 44 | |
Joint Venture evo properties | |
| 3 | |
Wholly owned Copper Beech properties | |
| 26 | |
Joint Venture owned Copper Beech properties(1) | |
| 9 | |
Total Copper Beech properties | |
| 35 | |
Total Portfolio(2) | |
| 82 | |
| (1) | The Company holds a 48% ownership interest in 7 unconsolidated
properties, as well as an 84% interest in one property and an 85% interest in one property, both of which are consolidated. See
Notes 6 and 18 for additional information. |
| (2) | The Company’s 100% owned redevelopment property
in Toledo, Ohio, which was acquired in March 2013 is excluded. As of December 31, 2014 and March 31, 2015, this property was classified
as held for sale. |
Subsequent to March
31, 2015, the Company engaged in additional transactions related to the remaining interest in the Copper Beech Portfolio (see Note
18).
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated
financial statements, presented in U.S. dollars, have been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”) and represent the Company’s financial position, results of operations and cash flows. Equity
interests owned by others in the Operating Partnership and two consolidated Copper Beech entities are reflected as non-controlling
interests in the consolidated financial statements. The Company also has interests in unconsolidated real estate ventures which
have ownership in several property owning entities that are accounted for under the equity method. All significant intercompany
balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period
presentation, primarily related to discontinued operations discussed in Note 7.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The unaudited
interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial
statements and accompanying notes for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2014 filed with the Securities and Exchange Commission. The results of operations and cash flows
for any interim period are not necessarily indicative of results for other interim periods or the full year.
Use of Estimates
The preparation of
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. Significant assumptions and estimates are used by
management in recognizing construction and development revenue (which is included in income (loss) from discontinued operations)
under the percentage of completion method, useful lives of student housing properties, valuation of investment in real estate and
investments in unconsolidated entities and land and properties held for sale, valuation allowance on deferred tax assets, initial
valuations used in the accounting for newly acquired student housing properties and the Copper Beech entities and trade name, fair
value of guarantee obligations related to unconsolidated entities, issuance proceeds receivable from damaged assets, determination
of fair value for impairment assessments, and fair value of financial assets and liabilities, including derivatives and allowance
for doubtful accounts. Actual results could differ from those estimates and such differences may be material to the consolidated
financial statements. Estimates and assumptions are reviewed periodically and the effect of such revisions are reflected prospectively
in the period in which they occur.
Consolidated Variable Interest Entity
During the year ended
December 31, 2013, the Company entered into a variable interest entity ("VIE") with Copper Beech Townhome Communities,
LLC ("CBTC") to develop, construct and manage a student housing property in Ames, Iowa (“Copper Beech at Ames”).
The property began operations during the third quarter of 2014. The Company concluded that it is the primary beneficiary of Copper
Beech at Ames as the Company funded all of the equity of this entity, resulting in the Copper Beech investor’s interest being
deemed a de facto agent of Campus Crest. The VIE’s assets and liabilities and the noncontrolling interest are included in
the consolidated balance sheet as of December 31, 2014. On January 30, 2015, in connection with the Copper Beech purchase transaction
(see Note 6), the Company’s ownership interest in Copper Beech at Ames increased to 100%. The acquisition of the noncontrolling
interest in Copper Beech at Ames was accounted for as an equity transaction and did not result in the recognition of a gain or
loss in the consolidated statement of operations and comprehensive income (loss).
Investments in Real Estate and Depreciation
Investment in real
estate is recorded at historical cost. Major improvements that extend the life of an asset are capitalized and depreciated over
a period equal to the shorter of the life of the improvement or the remaining useful life of the asset. The cost of ordinary repairs
and maintenance are charged to expense when incurred. Depreciation and amortization are recorded on a straight-line basis over
the estimated useful lives of the assets as follows:
Land improvements |
|
|
15 years |
Buildings and leasehold improvements |
|
|
10-40 years |
Furniture, fixtures and equipment |
|
|
5-10 years |
The cost of buildings
and improvements includes all pre-development, entitlement and project costs directly associated with the development and construction
of a real estate project, which include interest, property taxes and the amortization of deferred financing costs recognized while
the project is under construction, as well as certain internal costs related to the development and construction of the Company’s
student housing properties. All costs are capitalized as development in process until the asset is ready for its intended use,
which is typically at the completion of the project. Upon completion, costs are transferred into the applicable asset category
and depreciation commences. There was no interest capitalized during the three months ended March 31, 2015 and $1.9 million of
interest was capitalized during the three months ended March 31, 2014.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company capitalizes
costs during the development of assets beginning with the determination that development of a future asset is probable until the
asset, or a portion of the asset, is delivered and is ready for its intended use. During development efforts the Company capitalizes
all direct costs and indirect costs that have been incurred as a result of the development. These costs include interest, related
loan fees and property taxes as well as other direct and indirect costs. The Company capitalizes interest costs for debt incurred
for project specific financing and for capital contributions to equity method investees who utilize such funds for construction-related
activities. Indirect project costs, which include personnel and office and administrative costs that are clearly associated with
the Company’s development and redevelopment efforts, are capitalized. Indirect costs not clearly related to acquisition,
development, redevelopment and construction activity, including general and administrative expenses, are expensed in the period
incurred. As there were no assets under development during the three months ended March 31, 2015, correspondingly there were no
capitalized costs for the period. Capitalized indirect costs associated with the Company’s development activities were $3.3
million for the three months ended March 31, 2014. The Company was developing ten properties during the three months ended
March 31, 2014. All such costs are capitalized as development in process until the asset is delivered and ready for its intended
use, which is typically at the completion of the project. Upon completion, costs are transferred into the applicable asset category
and depreciation commences.
Pre-development costs
are capitalized when they are directly identifiable with the specific property and would be capitalized if the property were already
acquired and acquisition of the property or an option to acquire the property is probable. Capitalized pre-development costs are
expensed when management believes it is no longer probable that a contract will be executed or construction will commence. Because
the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations
have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be
arranged on acceptable terms or if the Company is unable to successfully obtain the required permits and authorizations. As such,
management evaluates the status of projects where the Company has not yet acquired the target property or where the Company has
not yet commenced construction on a periodic basis and expenses any pre-development costs related to projects whose current status
indicates the acquisition or commencement of construction is not probable. No such write-offs were recorded during the three months
ended March 31, 2015 and March 31, 2014. As of March 31, 2015 and December 31, 2014, the Company had no pre-development costs related
to development projects, (see Note 4 regarding the Company’s strategic repositioning initiatives). As of March 31, 2015,
the Company owned five strategically held land parcels that could be used for the development of phase two properties, with an
aggregate bed count ranging from approximately 1,000 to 1,500, and four land parcels and one property which the Company intends
to divest. The costs associated with the strategically held parcels are included in land held for investment on the accompanying
consolidated balance sheets. The costs associated with the land parcels and additional property in which the Company intends to
divest are included in land and property held for sale in the accompanying consolidated balance sheets.
Management assesses
whether there has been impairment in the value of the Company’s investment in real estate whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. For assets held and used, recoverability of investment in
real estate is measured by a comparison of the carrying amount of a student housing property to the estimated future undiscounted
cash flows expected to be generated by the property over the expected hold period. Impairment is recognized when estimated future
undiscounted cash flows, including proceeds from disposition, are less than the carrying value of the property. The estimation
of future undiscounted cash flows is inherently uncertain and relies on assumptions regarding current and future economics and
market conditions. If such conditions change, then an adjustment reducing the carrying value of the Company’s long-lived
assets could occur in the future period in which conditions change. To the extent that a property is impaired, the excess of the
carrying amount of the property over its estimated fair value is recorded as an impairment charge. Fair value is determined based
upon the discounted cash flows of the property, quoted market prices or independent appraisals, as considered necessary.
Property Acquisitions
Campus Crest recognizes
tangible and identified intangible assets and liabilities related to acquired properties based on the fair values of these assets
and liabilities for both consolidated entities and investments in unconsolidated entities. Fair value estimates are based on information
obtained from independent appraisals, market data, information obtained during due diligence and information related to the marketing
and leasing at the specific property. The value of in-place leases is based on the difference between (i) the property valued
with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant. As
lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates. Factors considered
in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current
market conditions, nature of the tenancy and costs to execute similar leases. Carrying costs include estimates of lost rentals
at market rates during the expected lease-up period, net of variable operating expenses. The value of in-place leases is amortized
on a straight-line basis over the remaining initial term of the respective leases, generally less than one year. The purchase price
of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected
levels of renewals.
Additionally, mortgage
debt premiums and discounts represent fair value adjustments for the difference between the stated rates and market rates of mortgage
debt assumed in connection with the Company’s acquisitions. The mortgage debt premiums and discounts are amortized to interest
expense over the term of the related mortgage loans using the effective-interest method. Acquisition-related costs such as due
diligence, legal, accounting and advisory fees are either expensed as incurred for acquisitions that are consolidated or capitalized
for acquisitions accounted for under the equity method of accounting.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-Lived Assets – Held for
Sale
Long-lived assets
to be disposed of are classified as held for sale in the period in which all of the following criteria are met:
| a. | Management, having the authority
to approve the action, commits to a plan to sell the assets. |
| b. | The asset is available for immediate
sale in its present condition subject only to terms that are usual and customary for
sales of such assets. |
| c. | An active program to locate a
buyer and other actions required to complete the plan to sell the asset have been initiated. |
| d. | The sale of the asset is probable,
and transfer of asset is expected to qualify for recognition as a completed sale, within
one year. |
| e. | The asset is being actively marketed
for sale at a price that is reasonable in relation to its current fair value. |
| f. | Actions required to complete the
plan indicate that it is unlikely that significant changes to the plans will be made
or that the plan will be withdrawn. |
Concurrent with this
classification, the land and property held for sale is recorded at the lower of cost or fair value less estimated selling costs,
and depreciation ceases.
Real Estate Ventures
Campus Crest holds
interests in its properties through interests in both consolidated and unconsolidated real estate ventures. The Company assesses
its investments in real estate ventures to determine if a venture is a variable interest entity (“VIE”). Generally,
an entity is determined to be a VIE when either (i) the equity investors (if any) lack one or more of the essential characteristics
of a controlling financial interest, (ii) the equity investment at risk is insufficient to finance that entity’s activities
without additional subordinated financial support or (iii) the equity investors have voting rights that are not proportionate
to their economic interests and substantially all of the activities of the entity involve or are conducted on behalf of an investor
that has disproportionately fewer voting rights. The Company consolidates entities that are VIEs for which the Company is determined
to be the primary beneficiary. In instances where the Company is not the primary beneficiary, the Company does not consolidate
the entity for financial reporting purposes. The primary beneficiary is the entity that has both (i) the power to direct the activities
that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the VIE. Entities that are not defined as VIEs are consolidated where
the Company is the general partner (or the equivalent) and the limited partners (or the equivalent) in such investments do not
have rights which would preclude control.
For entities
where the Company is the general partner (or the equivalent), but do not control the real estate venture, and the other partners
(or the equivalent) hold substantive participating rights, the Company uses the equity method of accounting. For entities where
the Company is a limited partner (or the equivalent), management considers factors such as ownership interest, voting control,
authority to make decisions and contractual and substantive participating rights of the partners (or the equivalent) to determine
if the presumption that the general partner controls the entity is overcome. In instances where these factors indicate the Company
controls the entity, the Company would consolidate the entity; otherwise the Company accounts for its investments using the equity
method of accounting.
Under the equity
method of accounting, investments are initially recognized in the consolidated balance sheet at cost and are subsequently adjusted
to reflect the Company’s proportionate share of net earnings or losses of the entity, distributions received, contributions
and certain other adjustments, as appropriate. Any difference between the carrying amount of these investments on the Company’s
balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings (loss) of unconsolidated
entities. When circumstances indicate there may have been a loss in value of an equity method investment, and the Company determines
the loss in value is other than temporary, the Company recognizes an impairment charge to reflect the investment at fair value.
Ground Leases
Ground lease expense
is recognized on a straight-line basis over the term of the related lease.
Cash, Cash Equivalents and Restricted
Cash
Campus Crest considers
all highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash is excluded
from cash for the purpose of preparing the consolidated statements of cash flows. The Company maintains cash balances in various
banks. At times the Company’s balances may exceed the amount insured by the Federal Deposit Insurance Corporation (“FDIC”).
The Company does not believe this presents significant exposure for the business.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted cash includes
escrow accounts held by lenders for the purpose of paying taxes, insurance and funding capital improvements. The Company’s
funds in escrow are typically held in interest bearing accounts covered under FDIC insurance with applicable limits.
Allowance for Doubtful Accounts
Allowances for student
receivables are maintained to reduce the Company’s receivables to the amount that management estimates to be collectible,
which approximates fair value. The allowance is estimated based on past due balances not received on contractual terms, as well
as historical collections experience and current economic and business conditions. When management has determined that receivables
are uncollectible, they are written off against the allowance for doubtful accounts. Recoveries of accounts previously written
off are recorded when received.
The following is
a summary of the Company’s allowance for doubtful accounts for the three months ended March 31, 2015 (in thousands):
Balance at December 31, 2014 | |
$ | (459 | ) |
Bad debt expense | |
| (741 | ) |
Write offs | |
| 9 | |
Balance at March 31, 2015 | |
$ | (1,191 | ) |
Write offs during the three months ended
March 31, 2014 were immaterial.
Intangible Assets
Campus Crest’s
intangible assets consist of acquired in-place leases and the trademark for the Copper Beech brand name. As previously mentioned,
the acquired in-place leases are amortized on a straight-line basis over the remaining initial term of the respective leases,
generally less than one year. The gross carrying amount, accumulated amortization and net carrying amount of the acquired in-places
leases was $26.0 million, $8.7 million and $17.3 million as of March 31, 2015, respectively. Amortization expense for the three
months ended March 31, 2015 was $8.7 million. The estimated amortization expense for the remainder of 2015 is $20.1 million, which
includes amortization related to the properties acquired as part of the Second CB Closing of $2.8 million. The Copper Beech trademark,
which is a non-amortizing intangible asset, has a carrying value of $3.7 million as of March 31, 2015. In accordance with FASB
ASC 350, Intangibles - Goodwill and Other, indefinite-lived intangible assets that are not subject to amortization must be tested
for impairment annually or more frequently if events or circumstances indicate they might be impaired. As such, the Company will
perform an impairment test in relation to the Copper Beech trademark on an annual basis or more frequently, if needed. As described
in Note 6, the amount of the acquired in-place lease intangibles and related amortization and the amount of the Copper Beech brand
name intangible are based on preliminary estimates that may change when the related acquisition accounting valuations are finalized.
Deferred Financing Costs
Campus Crest defers
costs incurred in obtaining financing and amortizes these costs using the straight-line method, which approximates the effective
interest method, over the expected terms of the related loans. Deferred financing costs as of March 31, 2015 and December 31,
2014 were $12.9 million and $11.7 million, respectively, and accumulated amortization was $5.5 million and $4.8 million as of
March 31, 2015 and December 31, 2014, respectively. Upon repayment of the underlying debt agreement, any unamortized costs are
charged to earnings. Deferred financing costs, net of accumulated amortization, are included in other assets, net in the accompanying
consolidated balance sheets.
Noncontrolling Interests
Noncontrolling interests
represent the portion of equity in the Company’s consolidated subsidiaries which are not attributable to the Company’s
stockholders. Accordingly, noncontrolling interests are reported as a component of equity, separate from stockholders’ equity,
in the accompanying consolidated balance sheets. On the consolidated statements of operations and comprehensive income (loss),
operating results are reported at their consolidated amounts, including both the amount attributable to the Company and to noncontrolling
interests. See also “Consolidated Variable Interest Entity.”
Student Housing Revenue
Students are required
to execute lease contracts with payment schedules that vary from annual to monthly payments. The Company recognizes revenue on
a straight-line basis over the term of the lease contracts which for new tenants is typically 11.5 months for Grove and evo properties
and 12 months for Copper Beech properties. The lease term for renewing tenants for all properties is typically 12 months. Generally,
unless sufficient income can be verified, each executed contract is required to be accompanied by a signed parental/guardian guaranty.
Amounts received in advance of the occupancy period or prior to the contractual due date are recorded as deferred revenues and
included in other liabilities on the accompanying consolidated balance sheets.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property Management Services
Management
fees are recognized when earned in accordance with each management contract. Incentive management fees are recognized when the
incentive criteria are met.
Development and Construction Services
Development and construction
service revenue is recognized using the percentage of completion method, as determined by construction costs incurred relative
to total estimated construction costs for each property under development and construction. For the purpose of applying this method,
significant estimates are necessary to determine the percentage of completion as of the balance sheet date. This method is used
because management considers total cost to be the best measure of progress toward completion of the contract. Any changes in significant
judgments and/or estimates used in determining construction and development revenue could significantly change the timing or amount
of construction and development revenue recognized.
Development
and construction service revenue is recognized for contracts with entities the Company does not consolidate. For projects where
revenue is based on a fixed price, any cost overruns incurred during construction, as compared to the original budget, will reduce
the net profit ultimately recognized on those projects. Profit derived from these projects is eliminated to the extent of the
Company’s interest in the unconsolidated entity. Any incentive fees, net of the impact of the Company’s ownership
interest if the entity is unconsolidated, are recognized when the project is complete and performance has been agreed upon by
all parties, or when performance has been verified by an independent third party. When total development or construction costs
at completion exceed the fixed price set forth within the related contract, such cost overruns are recorded as additional investment
in the unconsolidated entity. Entitlement fees and arrangement fees, where applicable, are recognized when earned based on the
terms of the related contracts.
Costs and estimated
earnings in excess of billings represent the excess of construction costs and profits recognized to date using the percentage
of completion method over billings to date on certain contracts. Billings in excess of costs and estimated earnings represents
the excess of billings to date over the amount of contract costs and profits recognized to date using the percentage of completion
method on certain contracts. Billings to date on such contracts totaled $51.0 million and $49.3 million as of March 31, 2015 and
December 31, 2014, respectively. During the three months ended June 30, 2015 the Company has billed the costs and estimated earnings
outstanding as of March 31, 2015 and expects to collect the amounts billed during the remainder of 2015.
Marketing and Advertising Costs
Marketing and advertising
costs are expensed during the period incurred and included in student housing and general and administrative expenses in the accompanying
consolidated statements of operations and comprehensive income (loss). Marketing and advertising expenses were $0.5 million and
$0.4 million for the three months ended March 31, 2015 and 2014, respectively.
Derivative Instruments and Hedging
Activities
Campus Crest enters
into interest rate cap agreements to manage floating interest rate exposure with respect to amounts borrowed, or forecasted to
be borrowed, under credit facilities. These contracts effectively limit the amount of interest the Company needs to pay should
interest rates exceed contracted levels. The Company had two interest rate caps as of March 31, 2015.
All derivative
instruments are recognized as either assets or liabilities on the consolidated balance sheets at their respective fair values.
Changes in fair value are recognized either in earnings or as other comprehensive income (loss), depending on whether the derivative
has been designated as a cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure
being hedged and how effective the derivative is at offsetting movements in underlying exposure. The Company discontinues hedge
accounting when: (i) it determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged
item; (ii) the derivative expires or is sold, terminated or exercised; (iii) it is no longer probable that the forecasted transaction
will occur; or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate. In
situations in which hedge accounting is not initially designated, or is discontinued and a derivative remains outstanding, gains
and losses related to changes in the fair value of the derivative instrument are recorded in current period earnings as a component
of other income (expense) line item on the accompanying consolidated statements of operations and comprehensive income (loss).
As of March 31, 2015 and December 31, 2014, the fair value of derivative contracts was insignificant.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Income Taxes
The Company has made
an election to qualify, and believes it is operating so as to qualify, as a REIT under Sections 856 through 859 of the Internal
Revenue Code. The Company’s qualification as a REIT depends upon its 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 the Company’s gross income, the composition and values of the Company’s assets, the Company’s
distribution levels and the diversity of ownership of its stock. The Company believes that it is organized in conformity with
the requirements for qualification and taxation as a REIT under the Internal Revenue Code and that the Company’s intended
manner of operation will enable it to meet the requirements for qualification and taxation as a REIT.
As a REIT,
the Company generally will not be subject to U.S. federal and state income tax on taxable income that it distributes currently
to its stockholders. If the Company fails to qualify as a REIT in any taxable year and does not qualify for certain statutory
relief provisions, the Company 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 it lost its REIT qualification.
Accordingly, the Company’s failure to qualify as a REIT could materially and adversely affect the Company, including its
ability to make distributions to its stockholders in the future.
Campus Crest has
made the election to treat TRS Holdings, the Company’s subsidiary which holds the Company’s management companies (as
well as the development and construction companies included within discontinued operations) that provide services to entities
in which the Company does not own 100% of the equity interests, as a TRS. As a TRS, the operations of TRS Holdings and its subsidiaries
are generally subject to federal, state and local income and franchise taxes. The Company’s TRS accounts for its income
taxes in accordance with U.S. GAAP, which includes an estimate of the amount of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s
financial statements or tax returns. Deferred tax assets and liabilities of the TRS entities are recognized based on the difference
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates in effect in the years in which those temporary differences are expected
to reverse.
Campus Crest
follows a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when the Company concludes that
a tax position, based solely on its technical merits, is more-likely-than-not (a likelihood of more than 50 percent) to be sustained
upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement.
De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines a tax position
no longer met the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for de-recognition
of tax positions is prohibited.
Comprehensive Income (Loss)
Comprehensive income
(loss) includes net income (loss) and other comprehensive income (loss), which consists of unrealized gains (losses) on derivative
instruments and foreign currency translation adjustments. Comprehensive income (loss) is presented in the accompanying consolidated
statements of operations and comprehensive income (loss), and accumulated other comprehensive income (loss) is displayed as a
separate component of stockholders’ equity.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock-Based Compensation
The Company grants
restricted stock and restricted Operating Partnership ("OP Unit”) awards that typically vest over either a three or
five year period. A restricted stock or OP Unit award is an award of shares of the Company’s common stock or OP Units that
are subject to restrictions on transferability and other restrictions determined by the Company’s compensation committee
at the date of grant. A grant date generally is established for a restricted stock award or restricted OP Unit award upon approval
from the Company’s compensation committee and Board of Directors. The restrictions may lapse over a specified period of
employment or the satisfaction of pre-established criteria as the Company’s compensation committee may determine. Except
to the extent restricted under the award agreement, a participant awarded restricted stock or OP Units has all the rights of a
stockholder or OP Unit holder as to these shares or units, including the right to vote and the right to receive dividends or distributions
on the shares or units. The fair value of the award generally is determined based on the market value of the Company’s common
stock on the grant date and is recognized on a straight-line basis over the applicable vesting period for the entire award with
cost recognized at the end of any period being at least equal to the shares that were then vested.
Foreign Currency
Transactions denominated
in foreign currencies are recorded in local currency at actual exchange rates at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet dates are reported at the rates of exchange prevailing
at those dates. Any gains or losses arising on monetary assets and liabilities from a change in exchange rates subsequent to the
date of the transaction have been included in discontinued operations, if resulting from operations within the Company’s
development or construction service company, or other income (expense) in the accompanying consolidated statements of operations
and comprehensive income (loss). As of March 31, 2015 and December 31, 2014, the Company had foreign currency exposure to the
Canadian dollar. The aggregate transaction gains and losses included in the accompanying consolidated statements of operations
and comprehensive income (loss) for the three months ended March 31, 2015 and 2014 were not significant.
The financial statements
of certain equity method investees and certain foreign subsidiaries are translated from their respective functional currencies
into U.S. dollars using current and historical exchange rates. Translation adjustments resulting from this process are reported
separately and included as a component of accumulated other comprehensive income (loss) in stockholders' equity in the accompanying
consolidated balance sheets. Upon classification as held for sale, sale or liquidation of the Company’s investments, the
translation adjustment would be reported as part of the gain or loss on classification, sale or liquidation. During the three
months ended March 31, 2015 and 2014, the Company recognized a foreign currency translation loss of $0.7 million and $1.0 million,
respectively, related to its investment in CSH Montreal, LP (“CSH Montreal”). Foreign currency translation loss is
included in accumulated other comprehensive loss on the accompanying consolidated balance sheets and in comprehensive income (loss)
in the accompanying consolidated statements of operations and comprehensive income (loss).
Insurance Recoveries
Insurance recoveries
are amounts due or received under the Company’s applicable insurance policies for asset damage and business interruption
relating to the previously disclosed fire at The Grove at Pullman, Washington and to the damage at The Grove at Wichita Kansas,
and The Grove at Wichita Falls, Texas. Business interruption recovery is recorded when realized and included as a reduction within
student housing operations expenses within the consolidated statements of operations and comprehensive income (loss). For the
three months ended March 31, 2015 and 2014, the Company recognized zero and $0.6 million, respectively of business interruption
recovery. As of March 31, 2015 and December 31, 2014, the Company had a receivable for property damage of $4.6 million and $5.5
million, respectively.
Segments
The Company has identified
three reportable business segments: (i) Grove and evo operations (ii) Copper Beech operations and (iii) property management services.
The Company evaluates the performance of its operating segments based on operating income (loss). All inter-segment sales pricing
is based on current market conditions. Unallocated corporate amounts include general expenses associated with managing the Company’s
three reportable operating segments. Prior to the closing of the Copper Beech sale transaction in January 2015, the Company’s
segments consisted of student housing operations and property management services. Upon closing of this transaction, the Company
added the Copper Beech operations as a new reportable operating segment. During the first quarter of 2015, the Company’s
chief operating decision maker began reviewing the separate operating results of the three operating segments to make decisions
about resources to be allocated to each segment and assess each segment’s performance.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Immaterial Corrections
Subsequent to the
issuance of the Company’s 2014 consolidated financial statements, the Company became aware of two immaterial corrections
that were necessary to be made to the consolidated financial statements. These errors related to the second, third and fourth
quarters of 2014. The Company has adjusted the prior year consolidated financial statements to reflect the impact of these immaterial
corrections. The total impact of these immaterial corrections increased the previously reported net loss attributable to common
stockholders from $174.9 million to $177.7 million for the year ended December 31, 2014 in the consolidated statement of operations
and comprehensive income (loss). As a result, accumulated deficit and distributions changed from $298.8 million to $301.6 million
in the accompanying consolidated balance sheet as of December 31, 2014. The first immaterial correction related to receivables
of $1.9 million included in other assets, net in the consolidated balance sheet that were determined to be incorrectly recorded
and uncollectible in connection with construction activities associated with the Company’s investment in CSH Montreal, which
was included in discontinued operations for the year ended December 31, 2014 in the consolidated statement of operations and comprehensive
income (loss). The second immaterial correction related to $0.9 million of pre-development costs that were inadvertently excluded
from the impairment of land and pre-development costs recorded in 2014. This correction had the effect of decreasing the carrying
value of land and properties held-for-sale as of December 31, 2014 and increasing the impairment of land and pre-development costs
by $0.9 million for the year ended December 31, 2014 in the consolidated statement of operations and comprehensive income (loss).
No changes in net cash provided by operating activities in the consolidated statement of cash flows resulted from these immaterial
corrections.
Recent Accounting Pronouncements
In February 2015,
the FASB issued ASU 2015-02, "Consolidation (Topic 810)", which amends the consolidation requirements in ASC 810, “Consolidation”.
ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All
legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (i) modify the
evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting
interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect
the consolidated analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and
related party relationships and (iv) provide a scope exception for certain entities. ASU 2015-02 is effective for annual reporting
periods beginning after December 15, 2015, and interim periods within those fiscal years. The Company is currently evaluating
the provisions of this guidance and the impact is not known.
In April 2015, the
FASB issued ASU 2015-03, "Interest-Imputation of Interest (Subtopic 835-30)", which simplifies the presentation of debt
issuance costs. To simplify presentation of debt issuance costs, the amendments in this update require that debt issuance costs
related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that
debt liability, consistent with debt discounts. For public business entities, the amendments in this Update are effective for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.
Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. The
Company is currently evaluating the provisions of this guidance and the impact is not known.
In May 2014, the
FASB issued ASU 2014-09 "Revenue From Contracts With Customers" which provides a single comprehensive revenue recognition
model for contracts with customers (excluding certain contracts, such as lease contracts) to improve comparability within industries.
ASU 2014-09 requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the
entity expects to be paid in exchange for those goods and services and provide enhanced disclosures, all to provide more comprehensive
guidance for transactions such as service revenue and contract modifications. ASU 2014-09 is effective for interim and annual
periods beginning after December 15, 2016 and may be applied using either a full retrospective or modified approach upon adoption.
The Company is currently evaluating the provisions of this guidance and the impact is not known.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3.
Student Housing Properties
The following is
a summary of the Company’s student housing properties, net for the periods presented (in thousands):
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Land | |
$ | 117,352 | | |
$ | 76,043 | |
Buildings and improvements | |
| 1,291,153 | | |
| 781,739 | |
Furniture, fixtures and equipment | |
| 97,792 | | |
| 78,180 | |
| |
| 1,506,297 | | |
| 935,962 | |
| |
| | | |
| | |
Less: accumulated depreciation | |
| (138,830 | ) | |
| (128,121 | ) |
| |
$ | 1,367,467 | | |
$ | 807,841 | |
In January 2015,
the Company exercised its option to acquire the remaining interests in 28 Copper Beech properties (26 at 100%, one at 85%, and
one at 84%), thereby increasing its student housing properties (see Note 6).
In July 2013, the
Company experienced a fire at The Grove at Pullman, Washington, a property under construction, which resulted in a partial loss
of the property. The Company has settled with its insurance company on a loss of $6.8 million, of which the Company received $2.5
million in insurance proceeds in 2013 and has received the remaining $4.3 million during the third quarter of 2015. This settlement
resulted in the write off of $0.3 million to reduce the receivable to the settled amount. This is included in write off of other
assets in the consolidated statements of operations and comprehensive income (loss).
4.
Strategic Repositioning Initiatives
The Company continues
to execute its strategic repositioning which began during the third quarter of 2014 and includes, among other things:
|
(1) |
Simplifying the business model by discontinuing
all construction and development and focusing on organic growth; |
|
(2) |
Reducing the number of joint ventures
through planned dispositions of certain assets within its joint ventures to simplify asset ownership structure and reduce
exposure to off-balance sheet obligations; |
|
(3) |
Disposing of land which was previously
held for future development (included in land and property held for sale in the accompanying consolidated balance sheets,
some of which were disposed of during the quarter ended March 31, 2015 (see Note 7) and the rest of which the Company expects
to dispose of during the remainder of 2015); and, |
|
(4) |
Undergoing a review of strategic alternatives. |
During the three
months ended March 31, 2015 the Company sold its interest in the following joint venture properties: The Grove at Stillwater,
OK, The Grove at Lawrence, KS, and The Grove at Conway, AR (see Note 7). These joint ventures were included in the Grove and evo
Operations segment.
On January 16, 2015,
the Company sold a portfolio of six undeveloped land parcels to a leading student housing developer resulting in net sale proceeds
of $28.3 million. The portfolio included parcels located in Alabama, Arizona, California, Florida, Michigan and Washington. The
sale was a part of the Company's previously announced strategic initiative to improve liquidity and simplify the balance sheet
by selling certain properties previously held for development. (See Note 7). These land parcels were included in the Grove and
evo Operations segment.
The Company also
terminated the employment of certain employees and eliminated positions as part of the strategic repositioning. In connection
with these terminations, the Company recognized severance expense of $0.5 million during the three months ended March 31, 2015,
which is included in operating expenses in the consolidated statements of operations and comprehensive income (loss). Severance
expense included $0.4 million for the acceleration of the vesting conditions of restricted shares for the three months ended March
31, 2015. As of March 31, 2015, there was $4.1 million of accrued severance included in accounts payable and accrued expenses
in the consolidated balance sheet of which $2.7 million and $1.4 million is expected to be paid in the remainder of 2015 and 2016,
respectively. Changes to the severance accrual during the three months ended March 31, 2015 are as follows (in thousands):
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Balance at December 31, 2014 | |
$ | 5,743 | |
New charges | |
| 122 | |
Cash payments | |
| (1,732 | ) |
Balance at March 31, 2015 | |
$ | 4,133 | |
5.
Income Taxes
The
Company believes it is operating so as to qualify as a REIT under the Internal Revenue Code. Therefore it is not subject to federal
income tax as long as it distributes at least 90% of its REIT taxable income to its stockholders each year. As a result, no provision
for federal income taxes has been included in the accompanying consolidated financial statements. If the Company fails to qualify
as a REIT, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income and
to federal income and excise taxes on its undistributed income.
The
Company’s TRSs are subject to federal, state, and local income taxes. As such, deferred income taxes result from temporary
differences between the carrying amounts of assets and liabilities of the TRSs for financial reporting purposes and the amounts
used for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years
in which those temporary differences are expected to reverse. Significant components of the deferred tax assets and liabilities
of the TRSs are as follows (in thousands):
| |
March 31, 2015 | | |
December 31, 2014 | |
Deferred tax assets: | |
| | |
| |
Solar investment tax credit | |
$ | 2,116 | | |
$ | 2,116 | |
Federal and state net operating loss | |
| 2,131 | | |
| 2,284 | |
Other | |
| 22 | | |
| 22 | |
Less: valuation allowance | |
| (3,849 | ) | |
| (4,002 | ) |
Total deferred tax assets | |
| 420 | | |
| 420 | |
Deferred tax liabilities: | |
| | | |
| | |
Deferred revenue | |
| - | | |
| - | |
Depreciation and amortization | |
| (420 | ) | |
| (420 | ) |
Total deferred tax liabilities | |
| (420 | ) | |
| (420 | ) |
Net deferred tax assets | |
$ | - | | |
$ | - | |
Due
to the Company’s decision to discontinue construction and development operations, it believes it is more likely than not
that the Company will not realize the value of its deferred tax assets, net of valuation allowance. For the three months ended
March 31, 2015, the valuation allowance decreased by $0.2 million due to the estimated use of certain state net operating losses.
The Company had no unrecognized tax benefits as of March 31, 2015 and December 31, 2014.
As
of March 31, 2015 the Company is not under an income tax examination by the Internal Revenue Service (“IRS”) or by
any state or local taxing authority. The Company is no longer subject to income tax examinations by the IRS for tax years before
2011 or by state or local income tax authorities for the tax years before 2010.
6.
Business Acquisitions
Denton, Texas Acquisition
In
January 2014, the Company acquired HSRE’s 80% ownership interest in HSRE IV, in which the Company previously held a 20%
interest and which owns The Grove at Denton, Texas, for $7.7 million. Prior to the acquisition of this interest, the Company accounted
for its ownership interest in the property under the equity method. In connection with evaluating the Company’s investment
in HSRE IV for impairment as of December 31, 2013, the Company recognized a loss of $0.3 million for the other than temporary
decline in value of its previously held equity interest in the property. The acquisition date fair value of the Company’s
equity interest in HSRE IV immediately before the acquisition of the remaining interest in HSRE IV was $1.9 million based on the
purchase price of the transaction. Subsequent to the Company’s acquisition of this interest, the Company consolidated the
balance sheet and results of operations of The Grove at Denton, Texas. For the three months ended March 31, 2014, the acquired
property contributed a total of $0.7 million in revenue and $0.3 million in expenses.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
following table is an allocation of the purchase price (in thousands):
Land | |
$ | 4,770 | |
Buildings and improvements | |
| 18,276 | |
Furniture, fixtures and equipment | |
| 2,284 | |
In-place leases | |
| 1,524 | |
Other | |
| (377 | ) |
Fair value of debt at acquisition | |
| (16,901 | ) |
| |
| 9,576 | |
Less estimated fair value of interest owned prior to acquisition | |
| (1,915 | ) |
| |
$ | 7,661 | |
Copper Beech Acquisition
On February 26, 2013,
the Company and subsidiaries of the Operating Partnership entered into a purchase and sale agreement (the “Initial Purchase
Agreement”) with the then members of Copper Beech Townhome Communities, LLC (“CBTC”) and Copper Beech Townhome
Communities (PA), LLC (“CBTC PA” and, together with CBTC, “Copper Beech”) (such former members of CBTC
and CBTC PA, collectively, the “Sellers”). Pursuant to the terms of the Initial Purchase Agreement, the Company initially
acquired a 48% interest in a portfolio of 35 student housing properties and 3 other entities (the “Copper Beech Portfolio”),
for an initial purchase price of $230.6 million. The Initial Purchase Agreement provided the Company with options to acquire the
remaining interests in the Copper Beech Portfolio over time. 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 completed the acquisition (the “First CB Closing”) of (i) substantially all of the Sellers’ remaining
interests in 27 student housing properties, 2 undeveloped land parcels and a corporate office building and (ii) the Sellers’
remaining interests in Copper Beech at Ames pursuant to that certain Second Amendment (the “Second Amendment”) to
the Initial Purchase Agreement.
Pursuant to the terms
of the Second Amendment, the Company 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 First CB Closing,
and as of March 31, 2015, the Company held a 100% interest in Copper Beech at Ames and the following interests in the remaining
Copper Beech Portfolio:
| · | 100%
interest in 25 student housing properties; |
| · | 100%
interest in 2 undeveloped land parcels and 1 corporate office building; |
| · | 85%
interest in 1 student housing property (Copper Beech Klondike or CBTC 8); |
| · | 84%
interest in 1 student housing property (Copper Beech Northbrook or CBTC 9); |
| · | 48%
interest in 7 student housing properties; and |
| · | no
ownership interest in 1 student housing property (Copper Beech Kalamazoo – Phase
I). |
As of April 30, 2015
(the "Second CB Closing"), the Company completed the acquisition of the Sellers’ interests in two of the properties
in the Copper Beech Portfolio in which the Company previously held a 48% interest – Copper Beech San Marcos Phase 1 and
Copper Beech IUP Buy.
As consideration
for the additional interests acquired in the First CB Closing, the Company paid to the Sellers aggregate cash consideration of
$58.9 million and the Operating Partnership issued to the Sellers an aggregate of approximately 10.4 million ($71.3 million) limited
partnership units of the Operating Partnership (“OP Units”). As consideration for the Second CB Closing, the Company
paid to the Sellers $1.4 million in cash and the Operating Partnership issued to the Sellers approximately 2.0 million ($13.0
million) in OP Units. The OP Units were valued at the closing price of the Company’s stock on the respective closing dates.
Additionally, the Company surrendered all of its previous 48% ownership interest in one of the properties (Copper Beech Kalamazoo
– Phase I) in the Copper Beech Portfolio as part of the terms of the Second Amendment. The Company continues to hold a 48%
ownership interest in Copper Beech Kalamazoo – Phase II as a result of not receiving lender consent to reduce its ownership
interest to zero.
Although the business
combination was achieved in stages, the Company had negotiated with the Sellers that a significant portion of the Copper Beech
Portfolio would be acquired in its entirety from the agreements that were entered into in 2013. When the Company entered into
the Initial Purchase Agreement, it was the intent of the Company to exercise the purchase options to acquire the remaining interests
in the Copper Beech Portfolio. Given the intent of the Company to exercise the purchase options to acquire the remaining interest
in the Copper Beech Portfolio, the timing of the consideration paid differed from the timing of when the Company obtained its
ownership interests in the Copper Beech Portfolio.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As the timing of the
consideration paid and ownership interest acquired at each stage differed, for purposes of computing how much of the gain to recognize
during the three months ended March 31, 2015, the Company allocated the total consideration paid in the First CB Closing and the
Second CB Closing, based on the relative provisional fair values of the assets acquired and liabilities assumed in the two closings.
As a result, a gain of $21.6 million was recognized and $6.3 million of additional gain on the First CB Closing was deferred and
included in other liabilities in the accompanying consolidated balance sheet during the three months ended March 31, 2015. This
deferred gain was recognized as part of the Second CB Closing which occurred on April 30, 2015.
The Company negotiated
the purchase of a significant portion of the Copper Beech Portfolio at the inception of the Initial Purchase Agreement, notwithstanding
the acquisition of ownership interests occurred in stages. During the year ended December 31, 2014, the Company recognized a $33.4
million loss on the effect of not exercising the Copper Beech option which correspondingly decreased the Company’s investment
in the Copper Beech Portfolio. This loss resulted from the Company reducing its ownership interest in 28 properties in the Copper
Beech Portfolio, from 67% to 48%. Additionally, included in the equity in losses recognized during the year ended December 31,
2014 and 2013, there were significant amounts of amortization expense for in-place lease intangible assets which also decreased
the carrying value of our investment in the Copper Beech Portfolio. Primarily as a result of these decreases to our investment
in the Copper Beech Portfolio, at the First and Second CB Closings, the Company realized a gain as the provisional fair value of
the assets acquired and liabilities assumed exceeded the consideration of cash paid, OP Units issued and the carrying value of
the investment in the Copper Beech Portfolio for these properties.
The following table
summarizes the provisional fair values of the assets acquired and liabilities assumed from the First CB Closing discussed above:
| |
January 30, | |
| |
2015 | |
Assets acquired: | |
| | |
Land | |
$ | 41,309 | |
Buildings | |
| 504,960 | |
Furniture, fixtures and equipment | |
| 19,192 | |
Intangibles | |
| 29,692 | |
Other assets, including cash of $5,074 | |
| 7,882 | |
Total assets acquired | |
$ | 603,035 | |
| |
| | |
Liabilities assumed: | |
| | |
Mortgage, construction loans and other debt | |
$ | 263,786 | |
Other liabilities | |
| 9,378 | |
Total liabilities assumed | |
$ | 273,164 | |
| |
| | |
Net assets acquired | |
$ | 329,871 | |
Since the First CB
Closing, the 28 Copper Beech properties that were acquired and consolidated contributed $9.2 million of revenues and $7.3 million
of net loss for the three months ended March 31, 2015 that are included in the accompanying consolidated statement of operations
and comprehensive income (loss). These results include depreciation of $2.8 million and amortization of in-place intangible assets
for the Copper Beech Portfolio of $8.7 million for the period from January 30, 2015 (date of First CB Closing) through March 31,
2015. In connection with the First CB and Second CB Closings, the Company recognized $1.3 million of transaction costs for the
three months ended March 31, 2015.
The acquired properties’
results of operations have been included in the accompanying consolidated statements of operations and comprehensive income (loss)
since the respective acquisition closing dates. The following pro forma information for the three months ended March
31, 2015 and 2014 presents consolidated financial information for the Company as if the property acquisitions discussed above had
occurred at the beginning of the earliest period presented. Excluded from the pro forma results below are $1.3 million and
$0.5 million of transaction costs for the three months ended March 31, 2015 and 2014, respectively and $21.6 million of gain on
purchase of Copper Beech for the three months ended March 31, 2015. Additionally, included in the pro forma results below for both
the three months ended March 31, 2015 and 2014 is approximately $13.0 million of amortization expense of in-place intangible assets.
The pro forma information is provided for informational purposes only and is not indicative of results that would have occurred
or which may occur in the future:
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
Pro Forma | |
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Total revenues | |
$ | 48,298 | | |
$ | 38,422 | |
Net loss | |
$ | (11,761 | ) | |
$ | (9,885 | ) |
Net loss attributable to common shareholders | |
$ | (10,773 | ) | |
$ | (11,333 | ) |
The initial accounting
for the business combination is incomplete with respect to the values assigned to tangible and intangible assets acquired with
liabilities assumed and OP Units issued as the Company did not have sufficient time to finalize these respective valuations and,
accordingly, the amounts recognized in these consolidated financial statements are provisional.
As of June 25, 2015,
the Company owned 100% of Copper Beech Klondike and Copper Beech Northbrook. See Note 18.
Montreal,
Quebec Acquisitions
In
July 2013, the Company entered into a joint venture, DCV Holdings, LP (“DCV Holdings”) with Beaumont Partners SA (“Beaumont”)
to acquire a 711 room, 33-story hotel in downtown Montreal, Quebec, Canada, for CAD 60.0 million. The joint venture has since converted
the property into an upscale student housing tower featuring a mix of single and double units serving McGill University, Concordia
University and L’Ecole de Technologie.
In December 2013,
the Company and Beaumont formed a holding company, CSH Montreal LP (“CSH Montreal”), and DCV Holdings was subsequently
contributed to CSH Montreal, such that CSH Montreal became the sole limited partner in DCV Holdings. In addition, following the
insertion of CSH Montreal as the holding company in the joint venture arrangement, CSH Montreal acquired ownership of HIM Holdings
LP (“HIM Holdings”), an entity formed to facilitate the acquisition of the Holiday Inn property in Canada. In
January 2014, HIM Holdings completed the acquisition of a hotel property, which has been converted into an upscale student housing
property serving McGill University. As of March 31, 2015 and December 31, 2014, the Company owned a 47.0% common interest
in CSH Montreal, the holding company of DCV Holdings.
7. Asset Dispositions
and Discontinued Operations
In connection with
the strategic repositioning initiatives, the Company discontinued all construction and development operations. See Note 4 for additional
information related to the strategic repositioning. In connection with the discontinuation of these operations, the Company has
presented the results of construction and development as discontinued operations in the accompanying consolidated statements of
operations and comprehensive income (loss) for all periods presented. These operations were previously included in the development,
construction and management services segment in the prior year’s Form 10-Qs. See Note 16 for additional segment information.
Below is a summary
of the consolidated balance sheet for the construction and development operations as of March 31, 2015 and December 31, 2014 (in
thousands):
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash | |
$ | 307 | | |
$ | 1,118 | |
Other assets | |
| 587 | | |
| 634 | |
Costs and earnings in excess of construction billings | |
| 618 | | |
| 3,887 | |
Total assets | |
| 1,512 | | |
| 5,639 | |
| |
| | | |
| | |
Accounts payable and accrued expenses | |
| 688 | | |
| 4,711 | |
Construction billings in excess of cost and earnings | |
| - | | |
| 481 | |
Total liabilities | |
| 688 | | |
| 5,192 | |
Total net assets | |
$ | 824 | | |
$ | 447 | |
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Below is a summary
of the results of operations for the construction and development operations for all periods presented (in thousands):
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Revenue | |
$ | - | | |
$ | 7,333 | |
Construction and development service expense | |
| (1,157 | ) | |
| (6,394 | ) |
Income (loss) from discontinued operations | |
$ | (1,157 | ) | |
$ | 939 | |
All construction and
development projects were substantially complete as of December 31, 2014.
On January 16, 2015,
the Company sold a portfolio of six undeveloped land parcels to a leading student housing developer resulting in net sale proceeds
of $28.3 million. The portfolio included parcels located in Alabama, Arizona, California, Florida, Michigan and Washington. The
sale was a part of the Company's previously announced strategic initiative to improve liquidity and simplify the balance sheet
by selling certain properties previously held for development. The Company disposed of the parcels through a rigorous sale process
which resulted in noticeable demand from a wide spectrum of bidders with numerous offers received. As a result of this transaction,
a gain of $3.1 million was recognized during the three months ended March 31, 2015. This gain is included in gain on sale of land
and unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income (loss).
On January 30, 2015,
the Company sold its 10% interest in the joint venture property, The Grove at Stillwater, Oklahoma for net sale proceeds of $1.0
million. Additionally as part of this closing, the Company received $1.9 million in proceeds for a receivable related to renovation
work performed at this property. No gain or loss was recognized.
On February 9, 2015,
the Company completed the sale of the Falcon 900, the corporate aircraft, resulting in net sale proceeds of $3.8 million. This
asset is presented in other assets on the consolidated balance sheet as of December 31, 2014. No gain or loss was recognized.
On March 31,
2015, the Company sold its 63.9% interest in the joint venture properties, The Grove at Conway, Arkansas and The Grove at Lawrence,
Kansas for net sale proceeds of $1.3 million. The Company recorded a receivable for the $1.3 million in net sale proceeds and subsequently
received the proceeds on April 1, 2015. During 2014, the Company’s investment had been reduced to below zero as the Company
had recorded an obligation of $3.3 million in connection with guarantees of debt of these two properties. As a result, a gain of
$4.6 million was recognized on this transaction. This gain is included in gain on sale of land and unconsolidated entities in the
accompanying consolidated statements of operations and comprehensive income (loss). The Company had no continuing involvement with
these properties, including providing debt guarantees, after March 31, 2015.
8. Investment in Unconsolidated
Entities
The Company has investments
in real estate ventures with HSRE, the former members (the “CB Investors”) of Copper Beech Townhome Communities, LLC
("CBTC") and Copper Beech Townhome Communities (PA), LLC (“CBTC PA,” together with CBTC, "Copper Beech"),
Brandywine and Beaumont that the Company does not consolidate. These joint ventures are engaged primarily in developing, constructing,
owning and managing student housing properties. Both the Company and its joint venture partners hold joint approval rights for
major decisions, including those regarding property acquisitions and dispositions as well as property operation. As such, the Company
has significant influence but not control in these joint ventures and accounts for them under the equity method of accounting.
The Company acts as
the operating member and day-to-day manager for its investments with HSRE, Brandywine and Beaumont and earns fees for these management
services. Additionally, for the three months ended March 31, 2014, the Company provided development and construction services to
the ventures with HSRE, Brandywine, Copper Beech and Beaumont and recognized fees as the services were performed. The fees related
to development and construction services are included in "Income (loss) from discontinued operations" in the accompanying
consolidated statements of operations and comprehensive income (loss). No development and construction services were provided during
the three months ended March 31, 2015.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
January 2014, CSH Montreal LP (“CSH Montreal”), the Company’s joint venture with Beaumont, formed HIM Holdings
LP (“HIM Holdings”), to facilitate the acquisition of the Holiday Inn Midtown in Montréal, Québec for
CAD 65 million ($56.2 million). In connection with the acquisition of the Holiday Inn property, the Company increased its ownership
interest from 20.0% to 47.0% in CSH Montreal, the joint venture that ultimately owns the Holiday Inn Midtown. In January 2014,
with the acquisition of the Holiday Inn Midtown property, the Company provided CAD 16.0 million ($13.8 million) of preferred bridge
equity financing to CSH Montreal to be repaid on or before September 2, 2014. As of September 2, 2014, the Company’s preferred
equity had not been repaid in full and as a result the Company is now entitled to 60.5% of all cash distributions related to earnings
from CSH Montreal, with Beaumont and its partners being entitled to the remaining 39.5%. The Company retains its common ownership
interest of 47.0% in CSH Montreal and recognizes 47.0% in all losses from CSH Montreal with Beaumont and its partners recognizing
the remaining 53.0%. The Company’s maximum exposure to loss is its investment in CSH Montreal and the amount,
if any, that could be due under its debt guarantee described in Note 17. While the Company is not obligated to provide additional
capital to CSH Montreal, the Company may fund operating commitments up to its 47.0% common ownership in the partnership.
As described in Note 18, the Company entered into a potential buyout agreement of its interest
in June of 2015, and therefore estimates that it will provide no additional capital funding. However, if the Company does
not close on this potential transaction, the Company expects to fund $3.9 million during the remainder of 2015, which is in addition
to the $0.8 million that the Company has already funded to date during the year.
In
conjunction with the Holiday Inn Midtown acquisition, CSH Montreal entered into a CAD 112.0 million ($88.4 million at the March
31, 2015 exchange rate) acquisition and development credit facility to help fund the conversion of both hotels into upscale student
housing towers. The credit facility provides for variable interest-only payments at the higher of the following: (i) Canadian Prime
rate, which was 3.00% at March 31, 2015, plus a weighted average spread of 3.39% or (ii) the Canadian Dealer Offered Rate (“CDOR”),
which was 1.298% at March 31, 2015, plus 1%, plus a weighted average spread of 3.39% through its maturity date on January 13, 2016.
This facility has one twelve-month extension option, subject to lender approval.
In
January 2014, the Company amended and restated the HSRE-Campus Crest I, LLC operating agreement, which had the effect of exchanging
its preferred interests in The Grove at San Angelo, Texas, and The Grove at Conway, Arkansas, for additional membership interests
in HSRE-Campus Crest I, LLC, effectively increasing the Company’s equity investment in the joint venture to 63.9% from 49.9%.
HSRE-Campus Crest I, LLC owns The Grove at San Angelo, Texas, and previously owned The Grove at Lawrence, Kansas, and The Grove
at Conway, Arkansas. On March 31, 2015, The Grove at Lawrence, Kansas and The
Grove at Conway, Arkansas were sold to third parties (see Note 7).
In February 2013,
the Company entered into purchase and sale agreements to acquire an approximate 48.0% interest in a portfolio of 35 student housing
properties, two undeveloped land parcels and a corporate office building held by the members of the Copper Beech Portfolio for
an initial purchase price of approximately $230.6 million, including the repayment of $106.7 million of debt. The remaining interests
in the Copper Beech Portfolio are held by certain of the former members of CBTC and CBTC PA, (the “CB Investors”).
In September 2013, the Company entered into an amendment to the above referenced purchase and sale agreements for consideration
of $4.0 million whereby it transferred its 48.0% interest in five properties in the Copper Beech Portfolio back to the CB Investors
and deferred the acquisition of two development properties as consideration for an additional 19.0% interest in each of the remaining
28 properties in the Copper Beech Portfolio. On August 18, 2014, the Company elected not to exercise the first purchase option
to acquire additional interests in the properties comprising the Copper Beech Portfolio. As a result of this decision, the Company
was entitled to 48.0% of the operating cash flows in the 35 operating properties, one office building and one parcel of land.
On January 30, 2015,
the Company completed the acquisition of substantially all of the remaining interests in 28 student housing properties, 2 undeveloped
land parcels and a corporate office building in the Copper Beech Portfolio. See Note 6 for additional information.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company is the
guarantor of the construction and mortgage debt or credit facilities of its joint ventures with HSRE, Brandywine and Beaumont (see
Note 17). Details of the Company’s unconsolidated investments at March 31, 2015 are presented in the following table (dollars
in thousands):
| |
| | |
| |
| |
| | |
Debt |
|
| |
| | |
| |
| |
| | |
| | |
Weighted | | |
|
|
| |
| | |
| |
Number of | |
| | |
| | |
Average | | |
|
|
| |
Our | | |
Year | |
Properties In | |
Total | | |
Amount | | |
Interest | | |
|
|
Unconsolidated Entities | |
Ownership | | |
Founded | |
Operation | |
Investment | | |
Outstanding | | |
Rate | | |
Maturity Date / Range |
|
HSRE-Campus Crest I, LLC | |
| 63.9 | % | |
2009 | |
1 | |
$ | 3,719 | | |
$ | 11,166 | (4) | |
| 2.68 | %(1) | |
5/09/2015 |
(3) |
HSRE-Campus Crest V, LLC | |
| 10.0 | % | |
2011 | |
2 | |
| - | | |
| 36,289 | (4) | |
| 2.88 | %(1) | |
5/05/2015 – 7/20/2015 |
(3) |
HSRE-Campus Crest VI, LLC | |
| 20.0 | % | |
2012 | |
3 | |
| 6,645 | | |
| 53,706 | (4) | |
| 2.49 | %(1) | |
5/08/2015 – 12/19/2015 |
(3) |
HSRE-Campus Crest IX, LLC | |
| 30.0 | % | |
2013 | |
1 | |
| 19,394 | | |
| 90,081 | (4) | |
| 2.38 | %(1) | |
7/25/2016 |
|
HSRE-Campus Crest X, LLC | |
| 30.0 | % | |
2013 | |
2 | |
| 7,836 | | |
| 42,579 | (4) | |
| 2.36 | %(1) | |
9/06/2016 – 9/30/2018 |
|
CB Portfolio | |
| 48.0 | % | |
2013 | |
7 | |
| 50,674 | | |
| 195,791 | (4) | |
| 5.41 | %(2) | |
10/01/2015 – 10/01/2020 |
|
CSH Montreal | |
| 47.0 | % | |
2013 | |
2 | |
| 5,515 | | |
| 82,113 | (4) | |
| 5.69 | %(1) | |
1/13/2016 |
|
Total unconsolidated entities | |
| | | |
| |
18 | |
$ | 93,783 | | |
$ | 511,725 | | |
| 4.12 | % | |
|
|
| (1) | Variable interest rates. |
| (2) | Comprised of fixed rate debt. |
| (3) | Certain loans which matured in May 2015 and are scheduled to mature during July 2015 are in the
process of being refinanced as of the date of this filing. |
| (4) | The amount outstanding for debt represents 100% of the debt outstanding at each of the respective
joint ventures in which the Company has varying ownership percentages. See Note 17 for a discussion of amounts of the outstanding
debt in which the Company guarantees on behalf of certain of these joint ventures. |
The following is a
summary of the combined financial position of the Company’s unconsolidated entities with HSRE, Brandywine and Beaumont in
their entirety, not only the Company’s interest in the entities, for the periods presented (in thousands):
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Assets | |
| | | |
| | |
Student housing properties, net | |
$ | 489,075 | | |
$ | 437,108 | |
Development in process | |
| - | | |
| 7,429 | |
Other assets | |
| 12,321 | | |
| 12,947 | |
Total assets | |
$ | 501,396 | | |
$ | 457,484 | |
| |
| | | |
| | |
Liabilities and Equity | |
| | | |
| | |
Mortgage and construction loans | |
$ | 315,935 | | |
$ | 354,759 | |
Other liabilities | |
| 19,237 | | |
| 29,364 | |
Owners' equity | |
| 166,224 | | |
| 73,361 | |
Total liabilities and owners' equity | |
$ | 501,396 | | |
$ | 457,484 | |
| |
| | | |
| | |
Company's share of historical owners' equity | |
$ | 52,860 | | |
$ | 30,481 | |
Preferred investment(1) | |
| 7,322 | | |
| 7,322 | |
Net difference in carrying value of investment versus net book value
of underlying net assets(2) | |
| (17,073 | ) | |
| 3,219 | |
Carrying value of investment in HSRE and other non-Copper Beech entities | |
$ | 43,109 | | |
$ | 41,022 | |
| (1) | As of March 31, 2015, the Company had Class B membership interests in The Grove at Indiana, Pennsylvania,
The Grove at Greensboro, North Carolina, and The Grove at Louisville, Kentucky, of $2.7 million, $2.7 million and $1.9 million,
respectively, entitling the Company to a 9.0% return on its investment upon the respective property being operational. |
| (2) | This amount represents the aggregate difference between the Company’s carrying amount and
its underlying equity in the net assets of its investments, which is typically amortized over the life of the related asset. The
basis differential occurs primarily due to the other than temporary impairments recorded during 2014, the difference between the
allocated value to acquired entity interests and the venture’s basis in those interests, the capitalization of additional
investment in the unconsolidated entities, and the elimination of service related revenue to the extent of the Company’s
percentage ownership. |
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ASC 323 Investments
– Equity Method and Joint Ventures and Article 4.08(g) of Regulation S-X requires that summarized financial information of
material investments accounted for under the equity method be provided of the investee’s financial position and results of
operations including assets, liabilities and results of operations under the investee’s historical cost basis of accounting.
Notwithstanding the extensive efforts of the Company and Copper Beech to compile the necessary financial information, the Company
has determined that the information needed for the preparation of historical financial statements of the Copper Beech Portfolio
to satisfy these requirements is not available or otherwise sufficiently reliable. As a result, the Company has elected to present
financial information on its investment in Copper Beech on the Company’s cost basis for its investment as of March 31, 2015
and December 31, 2014 as it believes this information is reliable and relevant to the users of its financial statements. Further,
although the Company acknowledges that the information provided does not comply with all of the provisions of ASC 323 or Article
4.08(g) of Regulation S-X, it does not believe that the lack of the omitted disclosure, or the information of the financial position
reflecting the cost basis of its investment provided results in a material omission or misstatement of the Company’s consolidated
financial statements taken as a whole.
The following is a
summary of the financial position of the Copper Beech entities at 100% basis for the seven and thirty five properties in which
the Company held a 48% interest as of March 31, 2015 and December 31, 2014, respectively (in thousands):
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Assets | |
| | | |
| | |
Student housing properties, net | |
$ | 306,139 | | |
$ | 906,614 | |
Intangible assets | |
| 2,283 | | |
| 7,212 | |
Other assets | |
| 14,178 | | |
| 14,293 | |
Total assets | |
$ | 322,600 | | |
$ | 928,119 | |
| |
| | | |
| | |
Liabilities and Equity | |
| | | |
| | |
Mortgage and construction loans | |
$ | 206,122 | | |
$ | 476,985 | |
Other liabilities | |
| 4,533 | | |
| 15,541 | |
Owners' equity | |
| 111,945 | | |
| 435,593 | |
Total liabilities and owners' equity | |
$ | 322,600 | | |
$ | 928,119 | |
| |
| | | |
| | |
Company's share of historical owners' equity | |
$ | 53,734 | | |
$ | 199,281 | |
Net difference in carrying value of investment
versus net book value of underlying net assets(1) | |
| (3,060 | ) | |
| 19,437 | |
Carrying value of investment in unconsolidated entity | |
$ | 50,674 | | |
$ | 218,718 | |
| (1) | This amount represents the aggregate difference between the historical cost basis and the basis reflected at the entity level,
which is typically amortized over the life of the related asset. The basis differential occurs primarily due to the impairment
recognized during the year ended December 31, 2014 in connection with not exercising the Copper Beech purchase option, offset by
the capitalization of transaction costs incurred to acquire the Company's interests in the Copper Beech entities. |
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a
summary of the combined operating results for the Company’s unconsolidated entities with HSRE, Brandywine and Beaumont in
their entirety, not only the Company’s interest in the entities. For the three months ended March 31, 2015 and 2014, this
summary includes results for 11 unconsolidated properties and 14 unconsolidated properties, respectively (in thousands):
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Revenues | |
$ | 9,055 | | |
$ | 6,456 | |
Expenses: | |
| | | |
| | |
Operating expenses | |
| 6,968 | | |
| 3,561 | |
Interest expense | |
| 2,894 | | |
| 1,051 | |
Depreciation and amortization | |
| 3,856 | | |
| 2,030 | |
Other (income) expense | |
| 16 | | |
| (53 | ) |
Total expenses | |
| 13,734 | | |
| 6,589 | |
Net loss | |
$ | (4,679 | ) | |
$ | (133 | ) |
The following is a
summary of the operating results for the Company’s unconsolidated Copper Beech entities in their entirety, not only the Company’s
interest in the entities. For the three months ended March 31, 2015 and 2014, this summary includes results for 7 unconsolidated
properties and 28 unconsolidated properties, respectively (in thousands):
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Revenues | |
$ | 7,628 | | |
$ | 19,265 | |
Expenses: | |
| | | |
| | |
Operating expenses | |
| 2,571 | | |
| 7,300 | |
Interest expense | |
| 2,445 | | |
| 2,940 | |
Depreciation and amortization | |
| 1,263 | | |
| 9,777 | |
Other expenses | |
| 182 | | |
| 339 | |
Total expenses | |
| 6,461 | | |
| 20,356 | |
Net income (loss) | |
$ | 1,167 | | |
$ | (1,091 | ) |
9.
Debt
The following is a
summary of the Company’s mortgage and construction notes payable, the Credit Facility (defined below), Exchangeable Senior
Notes (defined below), and other debt (in thousands):
| |
March 31, 2015 | | |
December 31, 2014 | |
Fixed-rate mortgage loans (1) | |
$ | 387,019 | | |
$ | 163,341 | |
Variable-rate mortgage loans | |
| 16,548 | | |
| 16,613 | |
Construction loans (1) | |
| 162,928 | | |
| 120,719 | |
Line of credit (1) | |
| 263,500 | | |
| 217,500 | |
Exchangeable senior notes | |
| 97,588 | | |
| 97,419 | |
Other debt | |
| 6,888 | | |
| 2,827 | |
| |
$ | 934,471 | | |
$ | 618,419 | |
| (1) | As stated in Note 6, on January 30, 2015, the Company and certain of its affiliates completed the
acquisition of substantially all of the Sellers’ remaining interests in most of the Copper Beech properties. This acquisition
represents $220.5 million of the increase in the fixed-rate mortgage loans, $37.9 million of the increase in the construction loans
and $4.5 million of the increase in other debt related to Copper Beech letters of credit. |
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Mortgage
and Construction Loans
Mortgage and construction
loans are collateralized by properties and their related revenue streams. Mortgage loans are not cross-defaulted or cross-collateralized
with any other indebtedness. The Company’s mortgage loans generally may not be prepaid prior to maturity; however, in certain
cases, prepayment is allowed subject to prepayment penalties. The Company’s construction note agreements contain representations,
warranties, covenants (including financial covenants upon commencement of operations) and other terms that are customary for construction
financing. Construction loans are generally secured by a first deed of trust or mortgage on each property, primary UCC filings,
and an assignment of rents, leases and profits from the respective property. Mortgage and construction loans for the periods presented
consisted of the following (in thousands):
| |
Face Amount | | |
Principal
Outstanding at 3/31/2015 | | |
Principal
Outstanding at 12/31/2014 | | |
Stated Interest Rate | | |
Interest Rate at
3/31/2015 | | |
Maturity Date
(1) | |
Amortization | |
Construction loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
The Grove at Muncie | |
$ | 14,567 | | |
$ | 13,892 | | |
$ | 13,892 | | |
| LIBOR
+ 225 BPS | | |
| 2.43 | % | |
7/31/2015 | |
| Interest
only | |
The Grove at Slippery Rock | |
| 17,961 | | |
| 17,738 | | |
| 16,031 | | |
| LIBOR
+ 215 BPS | | |
| 2.33 | % | |
6/21/2016 | |
| Interest
only | |
The Grove at Fort Collins | |
| 19,073 | | |
| 19,073 | | |
| 19,073 | | |
| LIBOR
+ 190 BPS | | |
| 2.08 | % | |
7/13/2016 | |
| Interest
only | |
The Grove at Pullman | |
| 16,016 | | |
| 10,886 | | |
| 10,886 | | |
| LIBOR
+ 220 BPS | | |
| 2.38 | % | |
9/5/2016 | |
| Interest
only | |
The Grove at Grand Forks | |
| 16,916 | | |
| 15,414 | | |
| 12,474 | | |
| LIBOR
+ 200 BPS | | |
| 2.18 | % | |
2/5/2016 | |
| Interest
only | |
The Grove at Gainesville | |
| 30,069 | | |
| 25,593 | | |
| 22,836 | | |
| LIBOR
+ 215 BPS | | |
| 2.33 | % | |
3/13/2017 | |
| Interest
only | |
Copper Beech at Ames | |
| 23,551 | | |
| 21,797 | | |
| 21,170 | | |
| LIBOR
+ 225 BPS | | |
| 2.43 | % | |
5/2/2017 | |
| Interest
only | |
Toledo Vivo | |
| 9,404 | | |
| 4,377 | | |
| 4,357 | | |
| LIBOR
+ 215 BPS | | |
| 2.33 | % | |
11/25/2017 | |
| Interest
only | |
CMU Phase II—Mount Pleasant, MI | |
| 10,130 | | |
| 9,120 | | |
| - | (6) | |
| LIBOR
+ 250 BPS | | |
| 2.68 | % | |
2/1/2017 | |
| 30
years | (7) |
Statesboro, GA Phase II | |
| 9,703 | | |
| 9,288 | | |
| - | (6) | |
| LIBOR
+ 250 BPS | | |
| 2.68 | % | |
11/1/2016 | |
| 30
years | (7) |
Auburn, AL | |
| 15,750 | | |
| 15,750 | | |
| - | (6) | |
| LIBOR
+ 200 BPS | | |
| 2.18 | % | |
2/6/2017 | |
| Interest
only | |
Mortgage loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
The Grove at Denton | |
| 17,167 | | |
| 16,549 | | |
| 16,613 | | |
| LIBOR
+ 215 BPS | | |
| 2.33 | % | |
3/1/2017 | |
| 30
years | (2) |
The Grove at Milledgeville | |
| 16,250 | | |
| 15,583 | | |
| 15,640 | | |
| 6.12% | | |
| 6.12 | % | |
10/1/2016 | |
| 30
years | (2) |
The Grove at Carrollton
and The Grove at Las Cruces | |
| 29,790 | | |
| 28,571 | | |
| 28,674 | | |
| 6.13% | | |
| 6.13 | % | |
10/11/2016 | |
| 30
years | (2) |
The Grove at Asheville | |
| 14,800 | | |
| 14,251 | | |
| 14,304 | | |
| 5.77% | | |
| 5.77 | % | |
4/11/2017 | |
| 30
years | (2) |
The Grove at Ellensburg | |
| 16,125 | | |
| 15,784 | | |
| 15,845 | | |
| 5.10% | | |
| 5.10 | % | |
9/1/2018 | |
| 30
years | (3) |
The Grove at Nacogdoches | |
| 17,160 | | |
| 16,792 | | |
| 16,857 | | |
| 5.01% | | |
| 5.01 | % | |
9/1/2018 | |
| 30
years | (3) |
The Grove at Greeley | |
| 15,233 | | |
| 14,880 | | |
| 14,945 | | |
| 4.29% | | |
| 4.29 | % | |
10/1/2018 | |
| 30
years | (3) |
The Grove at Clarksville | |
| 16,350 | | |
| 16,167 | | |
| 16,238 | | |
| 4.03% | | |
| 4.03 | % | |
7/1/2022 | |
| 30
years | (4) |
The Grove at Columbia | |
| 23,775 | | |
| 22,623 | | |
| 22,738 | | |
| 3.83% | | |
| 3.83 | % | |
7/1/2022 | |
| 30
years | (2) |
The Grove at Statesboro | |
| 18,100 | | |
| 18,047 | | |
| 18,100 | | |
| 4.01% | | |
| 4.01 | % | |
1/1/2023 | |
| 30
years | (5) |
Copper Beech I - State College | |
| 5,250 | | |
| 5,136 | | |
| - | (6) | |
| 5.61% | | |
| 5.61 | % | |
2/11/2016 | |
| 30
years | (2) |
Copper Beech II - State College | |
| 8,805 | | |
| 9,446 | | |
| - | (6) | |
| 5.97% | | |
| 5.97 | % | |
8/1/2019 | |
| 30
years | (2) |
Oakwood - State College | |
| 5,750 | | |
| 6,119 | | |
| - | (6) | |
| 4.99% | | |
| 4.99 | % | |
10/1/2020 | |
| 30
years | (2) |
IUP Phase I - Indiana | |
| 6,500 | | |
| 6,500 | | |
| - | (6) | |
| 2.15% | | |
| 2.15 | % | |
6/2/2017 | |
| Interest
only | |
IUP Phase II - Indiana | |
| 6,250 | | |
| 6,027 | | |
| - | (6) | |
| 5.90% | | |
| 5.90 | % | |
10/1/2015 | |
| 30
years | (2) |
Radford | |
| 12,400 | | |
| 12,624 | | |
| - | (6) | |
| 5.99% | | |
| 5.99 | % | |
11/6/2016 | |
| 30
years | (2) |
Bloomington | |
| 10,860 | | |
| 7,873 | | |
| - | (6) | |
| 6.22% | | |
| 6.22 | % | |
10/1/2016 | |
| 30
years | (2) |
CMU Phase I - Mount Pleasant, MI | |
| 20,000 | | |
| 18,455 | | |
| - | (6) | |
| 5.47% | | |
| 5.47 | % | |
10/1/2015 | |
| 30
years | (2) |
Bowling Green Phase I | |
| 13,000 | | |
| 12,344 | | |
| - | (6) | |
| 5.63% | | |
| 5.63 | % | |
10/1/2015 | |
| 30
years | (2) |
Allendale Phase I | |
| 23,780 | | |
| 24,110 | | |
| - | (6) | |
| 5.98% | | |
| 5.98 | % | |
10/1/2016 | |
| 30
years | (2) |
Allendale Phase II | |
| 11,896 | | |
| 12,621 | | |
| - | (6) | |
| 6.27% | | |
| 6.27 | % | |
9/6/2017 | |
| 30
years | (2) |
Columbia, MO | |
| 24,516 | | |
| 24,997 | | |
| - | (6) | |
| 6.22% | | |
| 6.22 | % | |
10/1/2016 | |
| 30
years | (2) |
Statesboro, GA Phase I | |
| 31,000 | | |
| 32,455 | | |
| - | (6) | |
| 5.81% | | |
| 5.81 | % | |
10/6/2017 | |
| 30
years | (2) |
Columbia, SC Phase I | |
| 36,936 | | |
| 38,995 | | |
| - | (6) | |
| 6.27% | | |
| 6.27 | % | |
9/6/2017 | |
| 30
years | (2) |
Columbia, SC Phase II | |
| 6,300 | | |
| 6,618 | | |
| - | (6) | |
| 5.41% | | |
| 5.41 | % | |
8/1/2020 | |
| 30
years | (2) |
| |
| | | |
$ | 566,495 | | |
$ | 300,673 | | |
| | | |
| | | |
| |
| | |
| (1) | For the construction loans, the maturity date is the stated maturity date in the respective loan
agreements, some of which can be extended for an additional one to two years, subject to the satisfaction of certain conditions,
depending on the loan. Prior to the filing of this document, the construction loan for The Grove at Fort Collins was extended to
July 31, 2016. The extension for the construction loan for The Grove at Muncie is pending an appraisal. Additionally, for loans
that have matured or will mature during 2015, the Company is actively pursuing an extension or refinancing of those loans. |
| (2) | Loan requires monthly payments of principal and interest, plus certain reserve and escrows, until
maturity when all principal is due. |
| (3) | Loan requires interest only payments plus certain reserves and escrows, payable monthly through
September 2013. Thereafter, principal and interest, plus certain reserves and escrows, are payable monthly until maturity. |
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| (4) | Loan requires interest only payments plus certain reserves and escrows, payable monthly through
August 2014. Thereafter, principal and interest, plus certain reserves and escrows, are payable monthly until maturity. |
| (5) | Loan requires interest only payments plus certain reserves and escrows, payable monthly through
January 2015. Thereafter, principal and interest, plus certain reserves and escrows, are payable monthly until maturity. |
| (6) | As stated in Note 6, on January 30, 2015, the Company and certain of its affiliates completed the
acquisition of substantially all of the Sellers’ remaining interests in 28 of the Copper Beech properties. Accordingly, these
balances were not recognized by the Company as of December 31, 2014. As part of recording the mortgage loans from the First CB
Closing at fair value, the outstanding amount, after giving effect for each loan’s respective provisional fair value adjustment,
could result in an outstanding balance greater than the face amount of the mortgage loan. These fair value adjustments are amortized
to interest expense over the term of the respective mortgage loans. |
| (7) | Loan required interest only payments until the loan was extended in March of 2015. Thereafter,
principal and interest, plus certain reserves, are payable monthly until maturity. |
Line of Credit
In January 2013,
the Company entered into the second amended and restated credit agreement (the "Second Amended and Restated Credit Agreement"),
which provides for a $250.0 million senior unsecured revolving credit facility (the "Revolving Credit Facility") and
a $50 million term loan (the “Term Loan”, together with the “Revolving Credit Facility”, the “Amended
Credit Facility”). Additionally, under certain circumstances, there is an accordion feature that allows the Company to request
an increase in the total commitments of an additional $300.0 million to a total commitment of $600.0 million. The Second Amended
and Restated Credit Facility will mature in January 2017 and contains a one-year extension option, subject to certain terms and
conditions. Amounts outstanding under the Second Amended and Restated Credit Facility bears interest at a floating rate equal to,
at the Company’s election, the Eurodollar Rate or the Base Rate (each as defined in the Amended Credit Facility) plus a spread.
The spread for borrowings under the Revolving Credit Facility ranges from 1.75% to 2.50% for Eurodollar Rate based borrowings and
from 0.75% to 1.50% for Base Rate based borrowings, and the spread for the Term Loan ranges from 1.70% to 2.45% for Eurodollar
Rate based borrowings and from 0.70% to 1.45% for Base Rate based borrowings. At March 31, 2015, the interest rate was 2.69% on
the Revolving Credit Facility borrowings and 2.64% on the Term Loan.
As of March 31, 2015,
the Company had $213.5 million outstanding under the Revolving Credit Facility and $50.0 million outstanding under the Term Loan.
The amounts outstanding under the Revolving Credit Facility and Term Loan, as well as outstanding letters of credit of $3.4 million,
will reduce the amount that the Company may be able to borrow under this facility for other purposes. At March 31, 2015, the Company
had $36.5 million in borrowing capacity under the Revolving Credit Facility, and amounts borrowed under the facility are due at
its maturity in January 2017, subject to a one-year extension, which the Company may exercise at its option, subject to the satisfaction
of certain terms and conditions, including the payment of an extension fee. The amount available for the Company to borrow under
the Amended Credit Facility is based on the sum of (a) the lesser of (i) 60.0% of the "as-is" appraised value of the
Company’s properties that form the borrowing base of the Amended Credit Facility and (ii) the amount that would create a
debt service coverage ratio of not less than 1.5, and (b) 50% of the aggregate of the lesser of (i) the book value of each of the
Company’s development assets (as such term is defined in the Second Amended and Restated Credit Agreement) and (ii) the "as-is"
appraised value of each of the Company’s development assets, subject to certain limitations in the Second Amended and Restated
Credit Agreement.
The Company incurs
an unused fee on the balance between the amount available under the Revolving Credit Facility and the amount outstanding under
the Revolving Credit Facility of (i) 0.30% per annum if the Company’s average borrowing is less than 50.0% of the total amount
available or (ii) 0.25% per annum if the Company’s average borrowing is greater than 50.0% of the total amount available.
On February 25, 2015,
the Company entered into the Second Amendment to the Revolving Credit Facility, which amended, among other things, certain of the
financial covenants from and including March 31, 2015 until and including September 30, 2015 (the “Relief Period”).
The Company’s
ability to borrow under the Amended Credit Facility is subject to its ongoing compliance with a number of customary financial covenants
during the Relief Period, including:
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| · | a maximum leverage ratio of not greater
than 0.65:1.00; |
| · | a minimum fixed charge coverage ratio
of not less than 1.30:1.00; |
| · | a minimum ratio of fixed rate debt and
debt subject to hedge agreements to total debt of not less than 66.67%; |
| · | a maximum secured recourse debt ratio
of not greater than 20.0%; |
| · | a minimum tangible net worth of not less
than the sum of $330,788,250 plus an amount equal to 75.0% of the net proceeds of any additional equity issuances; and |
| · | a maximum secured debt ratio of not greater
than 47.5%. |
Pursuant to the terms
of the Amended Credit Facility, the Company may not pay distributions that exceed the greater of (i) 95.0% of funds from operations,
or (ii) the minimum amount required for the Company to qualify and maintain its status as a REIT. If a default or event of default
occurs and is continuing, the Company also may be precluded from making certain distributions (other than those required to allow
the Company to qualify and maintain its status as a REIT). On September 30, 2014, the Company received a waiver with respect to
the distribution payout ratio for each distribution payout date through the end of 2015. The waiver was expressly conditioned on
the following: (i) no default or event of default shall have occurred and be continuing and (ii) as each test date during 2015,
the payout ratio shall be equal to or less than (A) 105% or (B) such greater amount as may be required by applicable law for the
Company to maintain its status of a REIT. Additionally, on February 25, 2015, the dividend payout ratio was amended to be calculated
on a rolling twelve month pro forma basis based on the current quarterly dividend of $0.09 per share.
The Company and certain
of its subsidiaries guarantee the obligations under the Amended Credit Facility and the Company and certain of its subsidiaries
have provided a negative pledge against specified assets (including real property), stock and other interests.
Exchangeable Senior Notes
The
Company has outstanding $100.0 million of Exchangeable Senior Notes due 2018 (the “Exchangeable
Senior Notes”) which bear interest at 4.75% per annum. Interest is payable on April 15 and October 15 of each year beginning
April 15, 2014 until the maturity date of October 15, 2018. The Operating Partnership’s obligations under the Exchangeable
Senior Notes are fully and unconditionally guaranteed by the Company. The Exchangeable Senior Notes are senior unsecured obligations
of the Operating Partnership and rank equally in right of payment with all other existing and future senior unsecured indebtedness
of the Operating Partnership. Although the indenture for the Exchangeable Senior Notes contains a cross-default provision, as of
March 31, 2015, no event under any of the Company’s credit facilities has triggered that cross-default provision (see Note
18).
The
Exchangeable Senior Notes contain an exchange settlement feature which allows the holder, under certain circumstances, to exchange
its Exchangeable Senior Notes for cash, shares of the Company’s common stock or a combination of cash and shares of common
stock, at the option of the Operating Partnership, based on an initial exchange rate of 79.602 shares of common stock per $1,000
principal amount of Exchangeable Senior Notes. At the initial exchange rate, the Exchangeable Senior Notes are exchangeable for
common stock at an exchange price of $12.56 per share of common stock.
The
Exchangeable Senior Notes will be exchangeable by the holder under the following circumstances on or prior to July 15, 2018: (i)
during any calendar quarter beginning after December 31, 2013 (and only during such quarter) if the closing sale price of the common
stock, $0.01 par value per share, of the Company is more than 130% of the then-current exchange price for at least 20 trading days
(whether or not consecutive) in the period of the 30 consecutive trading days ending on the last trading day of the previous calendar
quarter; (ii) during the five consecutive business-day period following any five consecutive trading-day period in which the trading
price per $1,000 principal amount of notes for each trading day during such five trading day period was less than 98% of the closing
sale price of the common stock of Campus Crest, or Campus Crest common stock, for each trading day during such five trading-day
period multiplied by the then current exchange rate; or (iii) upon the occurrence of specified corporate transactions described
in the indenture governing the Exchangeable Senior Notes. On or after July 15, 2018, and on or prior to the second scheduled trading
day immediately preceding the maturity date, holders of the Exchangeable Senior Notes may exchange their notes without regard to
the foregoing conditions. Following certain corporate transactions that occur prior to maturity of the Exchangeable Senior Notes
and that also constitute a make-whole fundamental change, the Operating Partnership will increase the exchange rate for holders
who elect to exchange notes in connection with such make-whole fundamental change in certain circumstances. If specified fundamental
changes involving the Operating Partnership or the Company occur, holders may require the Operating Partnership to repurchase the
Exchangeable Senior Notes for cash at a price equal to 100% of the principal amount of the Exchangeable Senior Notes to be purchased
plus any accrued and unpaid interest to, but excluding, the repurchase date.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
Operating Partnership may not redeem the Exchangeable Senior Notes prior to the maturity date. At any time prior to July 15, 2018,
the Operating Partnership may irrevocably elect, in its sole discretion without the consent of the holders of the Exchangeable
Senior Notes, to settle all of the future exchange obligation entirely in shares of the Company's common stock. On or after July
15, 2018, the Exchangeable Senior Notes will be exchangeable at any time prior to the close of business on the second business
day immediately preceding the maturity date.
In connection with
the issuance of the Exchangeable Senior Notes, the Company recorded $97.6 million within line of credit and other debt on the accompanying
consolidated balance sheet, based on the fair value of the instrument at the time of issuance, and $2.4 million in additional paid-in-capital,
net of offering costs, in the accompanying consolidated statements of changes in equity. Amortization related to the $2.4 million
in additional paid in capital was $0.2 million and $0.1 million for the three months ended March 31, 2015 and 2014, respectively.
On
May 21, 2015, the Operating Partnership delivered a notice of sole remedy under the indenture governing the Exchangeable Senior
Notes. See Note 18 for further details.
Other Debt
In June 2013, the
Company entered into a $33.4 million (CAD 35.0 million) unsecured note payable in connection with its acquisition of a hotel in
Montreal, Quebec, Canada. The note payable provided for interest-only payments at a variable interest rate equal to the Canadian
Dealer Offered Rate (“CDOR”), which was 1.30% at December 31, 2014, plus a spread of 2.50%. During the year ended December
31, 2014, this facility was assigned to and assumed by CSH Montreal, an unconsolidated joint venture, at which time the Company
became the sole guarantor of the facility. The note was repaid in full during the year ended December 31, 2014.
As stated in Note
6, on January 30, 2015, the Company, and certain of its affiliates, completed the acquisition of substantially all of the Sellers’
remaining interests in Copper Beech, which included $4.5 million of other debt. This other debt consists of three lines of credit
averaging about $1.5 million each. The interest rate on these lines of credit range from 3.25% to 3.59% and the maturity dates
on these lines of credit are between the dates of September 1, 2015 and July 1, 2017.
Schedule of Debt Maturities
Scheduled debt maturities
for the remainder of 2015 and each of the four years subsequent to December 31, 2015 and thereafter, are as follows (in thousands):
2015 | |
$ | 58,643 | |
2016 | |
| 187,846 | |
2017 | |
| 440,934 | |
2018 | |
| 164,684 | |
2019 | |
| 9,470 | |
Thereafter | |
| 63,556 | |
Total outstanding debt | |
| 925,133 | |
| |
| | |
Convertible note discount | |
| (2,412 | ) |
Copper Beech debt fair value adjustment | |
| 11,750 | |
Outstanding as of March 31, 2015, net of discount and fair value adjustment | |
$ | 934,471 | |
The Copper Beech debt
fair value adjustment relates to the difference between the carrying value and provisional fair value of the debt assumed by the
Company on January 30, 2015 (see Note 6), net of amortization of $1.0 million. Amortization of deferred financing costs was $0.6
million and $0.7 million for the three months ended March 31, 2015 and 2014, respectively.
Covenant
Renegotiation
On February 25, 2015,
the Company received a unanimously approved waiver under its amended credit facility that provides relief from certain financial
covenants during a relief period that runs from December 31, 2014 until and including September 30, 2015. During the relief period
the following new measurements will apply to covenant tests: maximum leverage ratio of not greater than 0.65:1.00; maximum secured
debt ratio of not greater than 47.5%; minimum fixed charge ratio of not less than 1.30:1.00; and a dividend payout ratio of not
more than 105.0% calculated on a pro forma basis that applies the current quarterly dividend of $0.09 on a trailing twelve month
basis.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Although the Company is
currently in compliance with the terms of its Second Amended and Restated Credit Agreement, the Company’s Board has determined,
based on an evaluation by management of the Company’s ability to satisfy all financial covenants in the credit agreement
for the next four quarters, not to declare or pay dividends on its Common Stock or Series A Preferred Stock for the first quarter
of 2015. In addition, the Board does not currently intend to declare or pay dividends on its Common Stock or Series A Preferred
Stock for the remainder of 2015 unless the Company experiences sufficient improvement in its operating results, including successfully
completing the sale of certain assets and enhancing the Company’s liquidity position by raising additional capital and/or
refinancing its existing credit facilities.
10. Derivative Instruments and Hedging
Activities
The Company used variable
rate debt to finance the construction of student housing properties in 2014 and prior. These debt obligations allow exposure to
variability in cash flows due to fluctuations in interest rates. The Company utilizes derivative instruments (interest rate caps)
to limit variability for a portion of the interest payments and to manage exposure to interest rate risk. The Company has two interest
rate caps totaling a notional amount of $275 million. Both instruments have a strike rate of 2.5% with maturity dates of July 22,
2015 and January 22, 2016. As of March 31, 2015 and December 31, 2014, the fair value of derivative contracts was insignificant.
Derivatives not designated
as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified
risks, but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging
relationships are recorded directly into earnings. The Company recorded an insignificant loss related to derivatives not designated
in hedging relationships in earnings for both the three months ended March 31, 2015 and 2014.
11. Fair Value Disclosures
Fair value guidance for
financial assets and liabilities that are recognized and disclosed in the consolidated financial statements on a recurring basis
and nonfinancial assets on a nonrecurring basis establishes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The three levels of the fair value hierarchy are as follows:
Level 1 — Observable
inputs, such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.
Level 2 — Other
inputs that are observable directly or indirectly, such as quoted prices in markets that are not active or inputs which are observable,
either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 — Unobservable
inputs for which there is little or no market data and which the Company makes its own assumptions about how market participants
would price the asset or liability.
As of March 31, 2015 and
December 31, 2014, the Company’s financial assets and liabilities carried at fair value on a recurring basis consisted of
interest rate caps. As of March 31, 2015 and December 31, 2014, the fair value of the Company’s interest rate caps, valued
using level 2 inputs, was approximately zero.
Fair
Value of Financial Instruments
The fair value of a financial
instrument represents the amount at which the instrument could be exchanged in a current transaction between market participants
at the measurement date (exit price), other than in a forced sale or liquidation. In instances where inputs used to measure fair
value fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value
measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in
its entirety. Management’s assessment of the significance of a particular input to the fair value measurement requires judgment
and considers factors specific to the asset or liability.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financial instruments
consist primarily of cash, cash equivalents, restricted cash, student receivables, interest rate caps, accounts payable, mortgages,
construction loans, Exchangeable Senior Notes, the line of credit and other debt. The carrying value of cash, cash equivalents,
restricted cash, student receivables and accounts payable are representative of their respective fair values due to the short-term
nature of these instruments. The estimated fair value of the Company’s revolving line of credit approximates the outstanding
balance due to the frequent market based re-pricing of the underlying variable rate index. The estimated fair values of the Company’s
mortgages, construction loans and Exchangeable Senior Notes were determined by comparing current borrowing rates and risk spreads
to the stated interest rates and risk spreads. The weighted average interest rate for all borrowings was 3.67% and 3.65% at March
31, 2015 and December 31, 2014, respectively.
The following is a summary
of the fair value of the Company’s mortgages, construction loans payable, other debt and Exchangeable Senior Notes aggregated
by the level in the fair value hierarchy within which those measurements fall (in thousands):
| |
Estimated Fair Value | | |
| |
March 31, 2015 | |
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | | |
Carrying Value | |
Fixed-rate mortgage loans | |
$ | - | | |
$ | 372,771 | | |
$ | - | | |
$ | 387,019 | |
Variable-rate mortgage loans | |
| - | | |
| 16,417 | | |
| - | | |
| 16,548 | |
Construction loans | |
| - | | |
| 162,011 | | |
| - | | |
| 162,928 | |
Exchangeable Senior Notes | |
| - | | |
| 102,030 | | |
| - | | |
| 97,588 | |
Other Debt | |
| - | | |
| 7,024 | | |
| - | | |
| 6,888 | |
| |
| | | |
| | | |
| | | |
| | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | |
Fixed-rate mortgage loans | |
$ | - | | |
$ | 164,808 | | |
$ | - | | |
$ | 163,341 | |
Variable-rate mortgage loans | |
| - | | |
| 16,467 | | |
| - | | |
| 16,613 | |
Construction loans | |
| - | | |
| 119,952 | | |
| - | | |
| 120,719 | |
Exchangeable Senior Notes | |
| - | | |
| 101,793 | | |
| - | | |
| 97,419 | |
Other Debt | |
| - | | |
| 3,014 | | |
| - | | |
| 2,827 | |
All of the Company’s
nonrecurring valuations were made in connection with property acquisitions in Note 6 and used significant unobservable inputs
and, therefore, fall under Level 3 of the fair value hierarchy.
Fair
Value Measurements on a Nonrecurring Basis
Assets measured at fair
value on the accompanying consolidated balance sheet as of December 31, 2014 consist of joint venture investments related to HSRE
I, HSRE V, HSRE VI and HSRE X (the “HSRE Investments”) and to the Company’s investment in CSH Montreal and land
parcels that were written-down to their estimated fair value. Factors giving rise to the strategic repositioning, including results
below expectations in original underwriting transactions and communication from the venture partner during the year ended December
31, 2014 about their desire to dispose of certain properties in the HSRE Investments in the near term, resulted in the Company’s
determination that an other than temporary impairment existed. After the impairments were recorded, the carrying values of the
Company’s HSRE Investments and investment in CSH Montreal were $15.1 million and $6.9 million, respectively. The Company
engaged third-party specialists to assist with the Company’s valuation of certain of the underlying properties in the HSRE
Investments. An income approach was used to determine the fair value of the Company’s HSRE Investments. Inputs and assumptions
included in the determination of fair value included the Company’s expectation of projected net operating income to be earned
ranging from $1.0 million to $2.6 million and capital expenditures to be incurred at the underlying properties and capitalization
rates ranging between 5.9% and 8.5%. The capitalization rates were determined based on the marketability of each of the properties
and the extent to which the operations of the property has stabilized. For the Company’s investment in CSH Montreal, the
Company used a discounted cash flow valuation technique to estimate the fair value of the Company’s investment. The discounted
cash flows take into consideration current occupancy levels with revenue per available bed increasing in conjunction with occupancies
growing up to 92% over a four year period, an expected exit value based on a 7.25% capitalization rate, and a 9.25% discount rate.
The discount rate includes the Company’s belief that the properties have not stabilized yet, given the occupancy levels
of the properties owned by CSH Montreal during its first year of operations. These valuation techniques involve Level 3 inputs
in the fair value hierarchy, and the Company believes that the highest and best use of these properties continues to be for student
housing. There were no additional impairments to these assets during the three months ended March 31, 2015.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below aggregates the fair values
of these assets by their level in the fair value hierarchy as of December 31, 2014 (in thousands):
| |
As of December 31, 2014 | |
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
HSRE JV - I | |
$ | 212 | | |
$ | - | | |
$ | - | | |
$ | 212 | |
HSRE JV - V | |
| - | | |
| - | | |
| - | | |
| - | |
HSRE JV - VI | |
| 6,815 | | |
| - | | |
| - | | |
| 6,815 | |
HSRE JV - X | |
| 8,073 | | |
| - | | |
| - | | |
| 8,073 | |
CSH Montreal | |
| 6,947 | | |
| - | | |
| - | | |
| 6,947 | |
Land Parcels and Toledo | |
| 45,518 | | |
| - | | |
| - | | |
| 45,518 | |
Total assets | |
$ | 67,565 | | |
$ | - | | |
$ | - | | |
$ | 67,565 | |
| |
| | | |
| | | |
| | | |
| | |
HSRE JV - V | |
| (4,500 | ) | |
| - | | |
| - | | |
| (4,500 | ) |
Total liabilities | |
$ | (4,500 | ) | |
$ | - | | |
$ | - | | |
$ | (4,500 | ) |
During
the three months ended March 31, 2015 certain assets included in the table above were sold. See Note 7 and 8 for additional detail.
See Notes 7, 8, 17 and 18 for additional information on the fair value of the guarantees.
12. Earnings per Share
Basic earnings per share
is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of the Company’s
common stock outstanding during the period. All unvested stock-based payment awards are included in the computation of basic earnings
per share. The computation of diluted earnings per share includes common stock issuable upon the conversion of Exchangeable Senior
Notes and other potentially dilutive securities in the weighted average shares, unless the effect of their conversion is anti-dilutive
in nature.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Computations of basic
and diluted income (loss) per share for the periods presented are as follows (in thousands, except per share data):
| |
Three
Months Ended March 31, 2015 | |
| |
Income
(Numerator) | | |
Shares
(Denominator) | | |
Per Share
Amount | |
Income from continuing operations | |
$ | 11,840 | | |
| | | |
| | |
Preferred stock dividends | |
| (3,050 | ) | |
| | | |
| | |
Loss from continuing operations attributable to noncontrolling interests | |
| (2,166 | ) | |
| | | |
| | |
Income from continuing operations attributable to common stockholders | |
| 10,956 | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Loss from discontinued operations | |
| (1,157 | ) | |
| | | |
| | |
Income from discontinued operations attributable to noncontrolling interests | |
| 9 | | |
| | | |
| | |
Loss from discontinued operations attributable to common stockholders | |
| (1,166 | ) | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Basic earnings per share: | |
| | | |
| | | |
| | |
Income from continuing operations attributable to common stockholders | |
| 10,956 | | |
| 64,720 | | |
$ | 0.17 | |
Loss from discontinued operations attributable to common stockholders | |
| (1,166 | ) | |
| 64,720 | | |
| (0.02 | ) |
Net income attributable to common stockholders | |
| 9,790 | | |
| 64,720 | | |
$ | 0.15 | |
| |
| | | |
| | | |
| | |
Effect of Dilutive Securities | |
| | | |
| | | |
| | |
Interest expense on exchangeable debt | |
| 1,356 | | |
| | | |
| | |
Incremental shares from assumed conversion (1) | |
| | | |
| 13,966 | | |
| | |
| |
| | | |
| | | |
| | |
Diluted earnings per share: | |
| | | |
| | | |
| | |
Income from continuing operations attributable to common stockholders | |
| 12,312 | | |
| 78,686 | | |
$ | 0.15 | |
Loss from discontinued operations attributable to common stockholders | |
| (1,166 | ) | |
| 78,686 | | |
| (0.01 | ) |
Net income attributable to common stockholders | |
$ | 11,146 | | |
| 78,686 | | |
$ | 0.14 | |
| |
Three
Months Ended March 31, 2014 | |
| |
Income
(Numerator) | | |
Shares
(Denominator) | | |
Per Share
Amount | |
Income from continuing operations | |
$ | 109 | | |
| | | |
| | |
Preferred stock dividends | |
| (3,050 | ) | |
| | | |
| | |
Loss from continuing operations attributable to noncontrolling interests | |
| (8 | ) | |
| | | |
| | |
Loss from continuing operations attributable to common stockholders | |
| (2,933 | ) | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Income from discontinued operations | |
| 939 | | |
| | | |
| | |
Loss from discontinued operations attributable to noncontrolling interests | |
| (7 | ) | |
| | | |
| | |
Income from discontinued operations attributable to common stockholders | |
| 946 | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Basic earnings per share: | |
| | | |
| | | |
| | |
Loss from continuing operations attributable to common stockholders | |
| (2,933 | ) | |
| 64,495 | | |
$ | (0.04 | ) |
Income from discontinued operations attributable to common stockholders | |
| 946 | | |
| 64,495 | | |
| 0.01 | |
Loss attributable to common stockholders | |
| (1,987 | ) | |
| 64,495 | | |
$ | (0.03 | ) |
| |
| | | |
| | | |
| | |
Effect of Dilutive Securities | |
| | | |
| | | |
| | |
Incremental shares from assumed conversion (1) | |
| | | |
| 434 | | |
| | |
| |
| | | |
| | | |
| | |
Diluted earnings per share: | |
| | | |
| | | |
| | |
Loss from continuing operations attributable to common stockholders | |
| (2,933 | ) | |
| 64,929 | | |
$ | (0.04 | ) |
Income from discontinued operations attributable to common stockholders | |
| 946 | | |
| 64,929 | | |
| 0.01 | |
Loss attributable to common stockholders | |
$ | (1,987 | ) | |
| 64,929 | | |
$ | (0.03 | ) |
| (1) | The effect of the inclusion of all potentially dilutive securities for 2015 is dilutive when computing
diluted earnings per share. For the period ended March 31, 2015, shares issuable upon settlement of the exchange feature of the
Exchangeable Senior Notes were dilutive and were included in the computation of diluted earnings per share based on the “if-converted”
method. The computation of diluted earnings per share used net income adjusted for interest expense related to the Exchangeable
Senior Notes of $1.4 million and a share price equal to the March 31, 2015 ending share value of $7.16 per share to calculate the
incremental shares. For the period ended December 31, 2014, shares issuable upon settlement of the exchange feature of the Exchangeable
Senior Notes were anti-dilutive and were not included in the computation of diluted earnings per share based on the “if-converted”
method. |
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13.
Equity
Preferred Stock
The Company’s 8.0%
Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”) ranks senior to the Company’s common
stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company’s affairs. The Company pays cumulative dividends on the Series A Preferred Stock from the date of original issue
at a rate of 8.00% per annum of the $25.00 liquidation preference per share (equivalent to the fixed annual rate of $2.00 per share).
Dividends on the Series A Preferred Stock are payable quarterly in arrears on or about the 15th day of January, April, July and
October of each year.
The Company may
not redeem the Series A Preferred Stock prior to February 9, 2017, except in limited circumstances relating to the Company’s
ability to qualify as a REIT. On or after February 9, 2017, the Company may, at its option, redeem the Series A Preferred Stock,
in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and
unpaid dividends on such Series A Preferred Stock to, but not including, the date of redemption. The Series A Preferred Stock has
no maturity date and is not subject to mandatory redemption or any sinking fund. Holders of shares of the Series A Preferred Stock
will generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly
periods (whether or not consecutive) and in certain other circumstances.
Common Shares and OP Units
An OP Unit and a share
of the Company’s common stock have essentially the same economic characteristics as they share equally in the net income
(loss) and distributions of the Operating Partnership. An OP Unit may be tendered for redemption for cash or share of common stock;
however, the Company has sole discretion and must have a sufficient amount of authorized common stock to exchange OP Units for
shares of common stock on a one-for-one basis.
On January 30, 2015, the
Company completed the First CB Closing. In addition to cash consideration exchanged for the additional interests acquired, the
Operating Partnership issued to the Sellers an aggregate of 10.4 million OP Units. See Note 6 for more information related to the
First CB Closing as well as the Second CB Closing that occurred on April 30, 2015.
As of March 31, 2015,
there were 75.5 million common shares and OP Units outstanding, of which 64.7 million, or 85.7%, were owned by the Company and
10.8 million, or 14.3%, were owned by other partners. As of March 31, 2015, the fair market value of the OP Units not owned by
the Company was approximately $77.0 million, based on a market value of $7.16 per unit, which was the closing price per share of
the Company’s common stock on the New York Stock Exchange on March 31, 2015.
The following is
a summary of changes in the shares of the Company’s common stock for the periods shown (in thousands):
| |
For the Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Common shares at beginning of period | |
| 64,742 | | |
| 64,502 | |
Issuance of common shares | |
| 112 | | |
| - | |
Forfeiture of restricted shares | |
| (134 | ) | |
| (15 | ) |
Common shares at end of period | |
| 64,720 | | |
| 64,487 | |
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary
of changes in the number of OP Units not owned by the Company for the periods shown (in thousands):
| |
For the Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
OP Units at beginning of period | |
| 401 | | |
| 434 | |
Issuance of OP Units | |
| 10,354 | | |
| - | |
OP Units at end of period | |
| 10,755 | | |
| 434 | |
Dividends and Distributions
During the first quarter
of 2015, the Company’s Board of Directors determined, based on an evaluation by management of the Company’s ability
to satisfy all financial covenants in the credit agreement for the next four quarters, not to declare or pay dividends on its Common
Stock or Series A Preferred Stock for the first quarter of 2015. In addition, the Board does not currently intend to declare or
pay dividends on its Common Stock or Series A Preferred Stock for the remainder of 2015 unless the Company experiences sufficient
improvement in its operating results, including enhancing its liquidity position by raising additional capital and/or refinancing
its existing credit facility. As these dividends were not declared at March 31, 2015, the Company has not accrued them but has
included the preferred stock dividends in the calculation of net income (loss) attributable to common shareholders in the accompanying
statement of operations and comprehensive income (loss).
For the three months ended
March 31, 2014, the Board of Directors declared a first quarter 2014 dividend of $0.165 per share of common stock and OP Unit.
The dividends were paid on April 9, 2014, to stockholders of record on March 26, 2014. At March 31, 2014, the Company accrued $10.7
million related to its common stock dividend in accounts payable and accrued expenses in its accompanying consolidated balance
sheet.
For the three months ended
March 31, 2014, the Board of Directors also declared a cash dividend of $0.50 per share of Series A Preferred Stock for the first
quarter of 2014. The preferred stock dividend was paid on April 15, 2014, to stockholders of record on March 26, 2014. At March
31, 2014, the Company accrued $2.5 million related to its preferred stock dividend in accounts payable and accrued expenses in
the Company’s accompanying consolidated balance sheet.
14. Incentive Plans
The Company has adopted
the Amended and Restated Equity Incentive Compensation Plan (the “Incentive Plan”) which permits the grant of incentive
awards to executive officers, employees, consultants and non-employee directors. The aggregate number of awards approved under
the Incentive Plan is 5.3 million. As of March 31, 2015, and December 31, 2014, 2.5 million shares were available for issuance
under the Incentive Plan.
Restricted Stock Awards
Awards to executive officers
and employees vest over a three year period and are subject to restriction based upon employment in good standing with the Company.
Awards to non-employee directors vest over a three or five year period and are subject to restriction based upon continued service
on the Board of Directors.
At March 31, 2015, total
unrecognized compensation cost related to restricted stock awards was $1.2 million and is expected to be recognized over a remaining
weighted average period of 1.3 years.
During the three months
ended March 31, 2015, the Company recognized stock compensation expense of $1.0 million (net of immaterial vesting forfeitures),
of which $0.4 million was related to the First CB Closing and is included in the transaction costs on the consolidated statement
of operations and comprehensive income (loss). During the three months ended March 31, 2014, the Company recognized stock compensation
expense of $0.7 million (net of vesting forfeitures of $0.1 million) and capitalized stock compensation expense of $0.4 million.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
following is a summary of the Company’s plan activity for the periods shown (in thousands, except weighted average grant
price):
| |
Restricted Stock | | |
Weighted Average Grant Price | |
Unvested shares at beginning of period (carry-forward) | |
| 288 | | |
$ | 11.28 | |
Granted | |
| 112 | | |
| 7.68 | |
Vested | |
| (94 | ) | |
| 7.56 | |
Forfeited | |
| (134 | ) | |
| 7.79 | |
Unvested shares at March 31, 2015 | |
| 172 | | |
| 7.71 | |
15.
Related Party Transactions
The
Company leases aircraft from entities in which two of its former executive officers have an ownership interest. For the three months
ended March 31, 2015 and 2014, the Company incurred lease payments related to these entities of $0.1 million and $0.1 million,
respectively. In addition to the minimum lease payments, the Company incurred related operating expenses in connection to the running
of the aircrafts. For the three months ended March 31, 2015 and 2014, the Company
incurred operating costs of $0.2 million and $0.6 million, respectively.
The Company is party to
an agreement with an initial term of five years with a subsidiary of an entity affiliated with one of the Company’s directors
pursuant to which it offers its tenants a program of insurance services and products. Pursuant to the agreement, the Company received
an upfront payment of $100,000 and will receive fees for each tenant it referred that enrolls in the program. Additionally, the
Company remits fees paid by the tenant for insurance services and products to the entity affiliated with its Executive Chairman.
The Company is not the insurer for such insurance services and products sold. The Company remitted $0.4 million and $0.3 million
for the three months ended March 31, 2015 and 2014, respectively.
The Company is party to
an arrangement with an entity, CB Townhome Communities, LLP (“CBTC, LLP”), in which a nominee for the Company’s
board of directors, Dr. John McWhirter, has an ownership interest. Historically, the Copper Beech properties have paid CBTC, LLP
for the use of a plane owned by another entity in which Dr. McWhirter has an ownership interest, Blackberry Aviation, LLC (“Blackberry”).
CBTC, LLP operates the plane which is owned by Blackberry and, based upon estimated expenses to operate the plane (including pilots,
fuel, storage, debt service, taxes, and other related operating expenses) determines a cost per flight hour for the upcoming fiscal
year. The Copper Beech properties collectively purchase a certain number of hours of flight time and allocate the aggregate cost
to the Copper Beech properties based upon the number of beds at each property relative to the total number of beds in the Copper
Beech Portfolio. The fiscal year for this arrangement runs from August 1 through July 31 and for year beginning August 1, 2014,
the Copper Beech entities agreed to purchase 70 flight hours with a cost of $0.4 million which will be incurred ratably throughout
the year.
In connection with the
consummation of the acquisition of additional membership interests in the Copper Beech Portfolio, the Company and the Operating
Partnership entered into a tax protection agreement with certain of the Sellers, including one or more entities in which Dr. John
R. McWhirter, a nominee for election as director of the Company, has an ownership interest. Pursuant to the tax protection agreement,
unless the Company and the Operating Partnership indemnify the applicable Sellers for certain resulting tax liabilities, the Company
and the Operating Partnership have agreed not to sell or otherwise to dispose of in a taxable exchange during the 7-year tax protection
period, any of the seventeen protected properties set forth in the tax protection agreement. Further, the Company and the Operating
Partnership also agreed to allocate to the Sellers, during the 7-year tax protection period, an aggregate amount of at least $100
million of debt of the Operating Partnership (which amount decreases ratably as the number of OP Units held by the Sellers decreases)
without any requirement that any Seller guarantee or directly bear the risk for such indebtedness and, after the end of the 7-year
period, to use commercially reasonable efforts to permit the Sellers to enter into guarantees of “qualifying” debt
or agreements to return a portion of their deficit capital account so as to permit the Sellers to avoid certain adverse tax consequences.
In connection with the acquisition of additional membership interests in the Copper Beech Portfolio, the Company also entered into
a registration rights agreement with certain of the Sellers, including one or more entities in which Dr. John R. McWhirter has
an ownership interest, pursuant to which the Company agreed to file a shelf registration statement no later than December 31, 2015,
covering resales of shares of the Company’s common stock, issuable upon redemption of the OP Units issued to the Sellers
as consideration for the acquisition. In addition, the Company agreed to use commercially reasonable efforts to have the registration
statement declared effective as soon as practicable after filing and to keep the registration statement effective until such time
as the Sellers no longer own any OP Units or shares of the Company’s common stock issued upon conversion of the OP Units.
Additionally, as of March 31, 2015, one or more entities in which Dr. McWhirter has an ownership interest owned an interest in
joint ventures with the Company and the other Sellers, which own 7 of the Copper Beech Portfolio properties (see Note 1).
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The unimproved real property
located in Charlotte, North Carolina and owned by Copper Beech Townhome Communities Thirty One LLC serves as collateral for a loan
in the original principal amount of $1.5 million extended by Clearfield Bank & Trust Company to John R. McWhirter and Jeanette
D. McWhirter on December 23, 2008, which loan has a current outstanding principal balance of $1.5 million.
The Company is party to
another arrangement with CBTC, LLP whereby CBTC, LLP employs all but one of the people who directly operate the Company’s
Copper Beech properties (at the property level and in the Company’s State College, PA satellite office). The individual who
has direct responsibilities related to the Company’s Copper Beech properties who is not an employee of CBTC, LLP is a party
to a consulting agreement with one of the Company’s wholly-owned entities. CBTC, LLP does not earn any profit as a result
of this arrangement as there is no mark-up of the direct costs associated with the employment of the CBTC, LLP personnel.
As described in Notes
1, 6 and 7, the Company retains a noncontrolling interest in several Copper Beech entities in which Dr. John McWhirter also holds
an interest.
The Company has net payables
of $3.4 million related to borrowings between properties, that were consolidated into the Company’s balance sheet upon
acquisition. These net payables are a result of a combination of amounts due to other non-consolidated Copper Beech entities and
entities in which Dr. John McWhirter has an ownership interest, but in which Campus Crest has no ownership interest. Additionally,
the Company’s balance sheet includes $2.6 million of outstanding amounts due to certain CB Investors, which related to amounts
funded prior to Campus Crest’s involvement with Copper Beech. Both the $3.4 million and $2.6 million are currently the subject
of on-going negotiations with certain of the CB Investors, the result of which may decrease the amount payable to the CB Investors,
thereby potentially increasing the gain on the purchase of Copper Beech.
16.
Segments
The Company has identified
three reportable business segments: (i) Grove and evo operations (ii) Copper Beech operations and (iii) property management services.
The Company evaluates the performance of its operating segments based on operating income (loss). All inter-segment sales pricing
is based on current market conditions. Unallocated corporate amounts include general expenses associated with managing the Company’s
three reportable operating segments. Prior to the First CB Closing in January 2015, the Company’s segments consisted of student
housing operations and property management services. Upon the First CB Closing, the Company added the Copper Beech operations as
a new reportable operating segment. Beginning with the first quarter of 2015, the Company’s chief operating decision
maker began reviewing the separate operating results of the three operating segments to make decisions about resources to be allocated
to each segment and assess each segment’s performance. Prior to the three months ended September 30, 2014, the Company reported
construction and development service as part of the property management segment. Upon discontinuation of the construction
and development operations, all construction and development activities are reported in discontinued operations.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set
forth the Company’s segment information for the periods presented (in thousands):
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Grove and evo Operations: | |
| | | |
| | |
Revenues from external customers | |
$ | 30,901 | | |
$ | 24,608 | |
Operating expenses | |
| 21,727 | | |
| 17,500 | |
Income from wholly-owned student housing operations | |
| 9,174 | | |
| 7,108 | |
Severance expense | |
| (508 | ) | |
| - | |
Equity in earnings (losses) of unconsolidated entities | |
| (1,372 | ) | |
| 251 | |
Operating income | |
$ | 7,294 | | |
$ | 7,359 | |
Depreciation and amortization | |
$ | 7,717 | | |
$ | 6,770 | |
Capital expenditures | |
$ | 1,376 | | |
$ | 30,218 | |
Investment in unconsolidated entities | |
$ | 43,109 | | |
$ | 93,291 | |
Total segment assets at end of period | |
$ | 927,097 | | |
$ | 972,460 | |
| |
| | | |
| | |
Copper Beech Operations: | |
| | | |
| | |
Revenues from external customers | |
$ | 9,199 | | |
$ | - | |
Operating expenses (excluding amortization of in place leases) | |
| 6,187 | | |
| - | |
Intangible amortization of in place leases | |
| 8,661 | | |
| - | |
Loss from wholly-owned student housing operations | |
| (5,649 | ) | |
| - | |
Equity in earnings (losses) of unconsolidated entities | |
| (777 | ) | |
| 68 | |
Operating income (loss) | |
$ | (6,426 | ) | |
$ | 68 | |
Depreciation and amortization | |
$ | 11,534 | | |
$ | - | |
Capital expenditures | |
$ | 338 | | |
$ | - | |
Investment in unconsolidated entities | |
$ | 50,674 | | |
$ | 266,010 | |
Total segment assets at end of period | |
$ | 652,609 | | |
$ | 266,010 | |
| |
| | | |
| | |
Property Management Services: | |
| | | |
| | |
Revenues from external customers | |
$ | 229 | | |
$ | 103 | |
Intersegment revenues | |
| 122 | | |
| 58 | |
Total revenues | |
| 351 | | |
| 161 | |
Operating expenses | |
| 233 | | |
| 365 | |
Operating income (loss) | |
$ | 118 | | |
$ | (204 | ) |
Depreciation and amortization | |
$ | 188 | | |
$ | 1 | |
Total segment assets at end of period | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Reconciliations: | |
| | | |
| | |
Total segment revenues | |
$ | 40,451 | | |
$ | 24,769 | |
Elimination of intersegment revenues | |
| (122 | ) | |
| (58 | ) |
Total consolidated revenues | |
$ | 40,329 | | |
$ | 24,711 | |
| |
| | | |
| | |
Segment operating income | |
$ | 986 | | |
$ | 7,223 | |
Interest expense | |
| (7,788 | ) | |
| (3,376 | ) |
Transaction costs | |
| (1,492 | ) | |
| - | |
Gain on purchase of Copper Beech | |
| 21,642 | | |
| - | |
Gain on sale of land and unconsolidated joint ventures | |
| 7,748 | | |
| - | |
Corporate depreciation and amortization | |
| (317 | ) | |
| (209 | ) |
Net unallocated expenses related to corporate overhead | |
| (8,115 | ) | |
| (3,785 | ) |
Write off of other assets | |
| (769 | ) | |
| - | |
Other income (expense) | |
| (55 | ) | |
| 66 | |
Income (loss) from continuing operations, before income tax benefit | |
$ | 11,840 | | |
$ | (81 | ) |
| |
| | | |
| | |
Total segment assets | |
$ | 1,579,706 | | |
$ | 1,238,470 | |
Unallocated corporate assets and eliminations | |
| 4,505 | | |
| 12,430 | |
Total assets at end of period | |
$ | 1,584,211 | | |
$ | 1,250,900 | |
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
17.
Commitments and Contingencies
Commitments
In the ordinary course
of business, certain liens related to the construction of the student housing real estate property may be attached to the Company’s
assets by contractors or suppliers. Campus Crest Construction, LLC, a wholly-owned subsidiary of the Company, is responsible as
the general contractor for resolving these liens. There can be no assurance that the Company will not be required to pay amounts
greater than currently recorded liabilities to settle these claims.
The Company has properties
that are subject to long-term ground leases. Typically, these properties are located on the campuses of colleges or universities.
The Company has the right to encumber its leasehold interests with specific property mortgages for the purposes of constructing,
remodeling or making improvements on or to these properties. Title to all improvements paid for and constructed on the land remains
with the Company until the earlier of termination or expiration of the lease, at which time the title of any buildings constructed
on the land will revert to the landlord. Should the Company decide to sell its leasehold interests during the initial term or any
renewal terms, the landlord has a right of first refusal to purchase the interests for the same purchase price under the same terms
and conditions as contained in the Company’s offer to sell its leasehold interests.
Campus Crest leases space
for its corporate headquarters office. Rent is recognized on a straight-line basis. Future minimum payments over the life of the
Company’s corporate office lease and long-term ground leases subsequent to March 31, 2015 are as follows (in thousands):
2015 | |
$ | 1,923 | |
2016 | |
| 2,270 | |
2017 | |
| 1,963 | |
2018 | |
| 1,513 | |
2019 | |
| 1,327 | |
Thereafter | |
| 26,821 | (1) |
Total future minimum lease payments | |
$ | 35,817 | |
|
(1) |
The Company’s lease obligations total $1.3 million per year through the year 2023. In addition to operating and office leases, the Company has ground leases that average $0.4 million per year through the year 2081. |
The Company paid rent
for its corporate headquarters office of $0.3 million and $0.2 million for the three months ended March 31, 2015 and 2014, respectively.
The Company guarantees
certain mortgage and construction loans and revolving credit facilities related to the Company’s unconsolidated joint ventures.
As of March 31, 2015, the Company guarantees: up to 100% of $11.2 million of debt through May 2015 for HSRE I; up to 50% of $132.6
million of debt with varying maturity dates from May 2015 through September 2018 for HSRE V, HSRE VI and HSRE X; and up to 25%
of $90.1 million of debt maturing in July 2016 related to HSRE IX. Certain loans which matured in May 2015 and are scheduled to
mature during July 2015 are in the process of being refinanced as of the date of this filing. In connection with the guarantee
for HSRE I, there is $3.0 million held in escrow that could be used to satisfy a portion of the amount potentially paid under the
guarantee. Should there be an event of default in connection with this debt, the Company could be required to fund under these
guarantees a maximum amount up to the percentage of the guaranteed amount of the balance of the debt outstanding as of March 31,
2015. The Company estimated the fair value of the guarantees to be $9.4 million, $3.2 million of which relates to the Company's
HSRE I investment and is netted against its investment and $6.2 million of which relates to the Company's HSRE V investment and
is netted against the value of the investment to the extent the investment is reduced to zero. Following the reduction of the HSRE
V investment to zero, a remaining accrual of $5.5 million is presented in other liabilities in the accompanying consolidated balance
sheet as of March 31, 2015 and December 31, 2014. The estimated fair value of these guarantees was the amount of the Company’s
obligation to fund the excess of the joint ventures’ indebtedness over the estimated fair value of the collateral of the
joint ventures’ indebtedness, which is the underlying value of the properties.
In connection with the
Company’s investment in CSH Montreal, the Company provides a guarantee of up to 50% of the outstanding balance of the acquisition
and development credit facility (“CSH Montreal Debt”) of CAD 112.0 million ($88.4 million at March 31, 2015 exchange
rate). As of March 31, 2015, the outstanding balance of the CSH Montreal Debt was CAD 104.0 million ($82.1 million at March 31,
2015 exchange rate), of which the Company guaranteed CAD 52.0 ($41.1 million at March 31, 2015 exchange rate). The term of the
guarantee follows the term of the underlying debt, which matures on January 13, 2016, unless the twelve month extension, which
is subject to lender approval, is exercised. The CSH Montreal Debt is secured by, among other things, a first mortgage position
on the real estate and improvements owned by CSH Montreal. The Company has estimated the fair value of this guarantee to be immaterial.
CAMPUS CREST COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company does not expect
to be required to perform under any of the guarantees discussed above. In the event that the Company is required to perform under
one of the guarantees, it believes the borrower’s assets collateralizing the debt would be sufficient to cover the maximum
potential amount of future payments under the guarantee, except as disclosed above.
See Note 18 for a discussion
of guarantees related to a Copper Beech entity in which the Company expects that it may be required to perform under.
Contingencies
In the normal course of
business, the Company is subject to claims, lawsuits and legal proceedings. In addition to the matters described below, the Company
is involved in various routine legal proceedings arising in the ordinary course of business. Although the outcomes of such routine
legal proceedings cannot be predicted with certainty, in the opinion of management, the ultimate resolution of such routine matters
will not have a material adverse effect on the Company’s financial position or results of operations.
On January 21, 2015, the
Company and certain of its subsidiaries were named as defendants in a lawsuit filed in the 7th Division of the Jefferson Circuit
Court in Jefferson County in Louisville, Kentucky. The case arose from an individual who fell to his death at a construction site
located at 2501 South 4th Street, Louisville, Jefferson County, Kentucky. Also named as co-defendants in the case are three other
companies associated with the construction and/or employment of the deceased individual. The plaintiffs allege, among other things,
the Company was negligent and/or allowed a dangerous or hazardous condition to exist on the premises. The plaintiffs’ initial
complaint did not specify the amount of damages sought. The Company has filed its responsive pleadings. Based upon the totality
of the circumstances, including the existence of insurance coverage and anticipated indemnity from third-parties, the Company does
not believe that the lawsuit, if adversely determined, would have a material adverse effect on the Company's financial position
or results of operations.
The Company is not aware
of any environmental liability with respect to the properties that could have a material adverse effect on the Company’s
business, assets or results of operations. However, there can be no assurance that such a material environmental liability does
not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s financial
position or results of operations and cash flows.
18.
Subsequent Events
In addition to certain
matters discussed elsewhere in these notes, the Company noted the following subsequent events:
Copper Beech Transaction
As stated in Note 6, as
of April 30, 2015, the Company has completed the acquisition of the Sellers’ interests in two of the properties in the Copper
Beech Portfolio in which the Company previously held a 48% interest – Copper Beech San Marcos Phase 1 and Copper Beech IUP
Buy. As consideration for the Second CB Closing, the Company paid to the Sellers $1.4 million in cash and the Operating Partnership
issued to the Sellers 2.0 million in OP Units. The Company preliminarily estimates that the gain recognized in connection with
the Second CB Closing during the three months ending June 30, 2015 will be approximately $7.7 million.
On April 30, 2015, the
Company entered into a purchase agreement with Pennsylvania State University (the “Penn State Seller”) to purchase
its 15% interest in Copper Beech Klondike and its 16% interest in Copper Beech Northbrook for $4.6 million. The closing occurred
on June 25, 2015 with $2.3 million being paid to the Penn State Seller with the remaining balance of $2.3 million expected to be
paid on September 23, 2015. The transactions to purchase the remaining interests in these two properties were contemplated and
structured as of the date of the First CB Closing. As of June 25, 2015, the Company owned 100% of both Copper Beech Klondike and
Copper Beech Northbrook. As the purchase price of $4.6 million for these interests were known prior to the issuance of these consolidated
financial statements, the Company believes that $4.6 million represents the fair value of the non-controlling interest. As a result,
$4.6 million was used as the estimated amount of the non-controlling interest for these two properties which were consolidated
as part of the First CB Closing. As a result, the Company does not expect any gain to be recognized during the second quarter of
2015 as part of this transaction. In addition, there were not significant costs incurred in connection with this transaction.
CAMPUS
CREST COMMUNITIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Changes
in Management
On
April 21, 2015, the Board authorized the appointment of David Coles as Interim Chief Executive Officer of the Company and John
Makuch as Interim Chief Financial Officer of the Company, subject to the finalization of an engagement letter with Alvarez &
Marsal North America, LLC (“Alvarez & Marsal”).
On
April 29, 2015, the Company entered into an engagement letter with Alvarez & Marsal, effective as of April 21, 2015, providing
for Mr. Coles’ services as the Company’s Interim Chief Executive Officer, Mr. Makuch’s services as the Company’s
Interim Chief Financial Officer and the services of additional support personnel as needed (the “Engagement Letter”).
Under the terms of the Engagement Letter, during their respective service at the Company, Messrs. Coles and Makuch will continue
to be employed by Alvarez & Marsal and will not receive any compensation directly from the Company or participate in any of
the Company’s employee benefit plans.
Changes
in Board of Directors
On
May 3, 2015, the Company entered into an agreement (the “Clinton Group Agreement”) with Clinton Group,
Inc. and its affiliated funds (collectively, the “Clinton Group”). At the time the Clinton Group Agreement was entered
into, the Clinton Group was the beneficial owner of approximately 1.6% of the Company’s outstanding shares of common stock.
Pursuant to the Clinton Group Agreement, the Company agreed to increase the size of its Board of Directors from six to eight directors
and to appoint two new directors proposed by the Clinton Group to the Board, including Raymond C. Mikulich and Randall H. Brown.
In addition, the Company agreed to appoint Curtis B. McWilliams to the Board. The Board appointed Messrs. Mikulich, Brown and
McWilliams to the Board effective May 6, 2015.
Notice
of Sole Remedy under Indenture for 4.75% Exchangeable Senior Notes due 2018
On
May 21, 2015, the Operating Partnership delivered a notice (the “Notice”) to the holders of its 4.75% Exchangeable
Senior Notes due 2018 (the “Exchangeable Senior Notes”), with a copy of such Notice to the Trustee, pursuant to the
Indenture dated as of October 9, 2013 (the “Indenture”), by and among the Operating Partnership, the Company, and
U.S. Bank National Association (the “Trustee”), The Notice provided that the Company anticipated it would be unable
to timely file this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 by June 2, 2015, which would result in
a reporting event of default under the Indenture. The Notice further provided that, pursuant to Section 6.01(b) of the Indenture,
the Operating Partnership elected that the sole remedy for the reporting event of default would consist exclusively of the right
to receive additional interest on the Exchangeable Senior Notes at a rate equal to (i) 0.25% per annum of the outstanding principal
amount of the Exchangeable Senior Notes for
the first 90 days of the 180-day period in which such reporting event of default is continuing, beginning on, and including, the
date on which such reporting event of default first occurs and (ii) 0.50% per annum of the outstanding principal amount of the
Exchangeable Senior Notes for the last 90 days of such 180-day period as long as such reporting event of default is continuing,
payable subject to and in accordance with the terms and conditions of the Indenture.
Communications
with Lenders Related to Certain Debt Obligations
Campus
Crest at Pullman, LLC ("CC Pullman"), Campus Crest at Grand Forks, LLC ("CC Grand Forks") and Campus Crest
at Laramie, LLC (“CC Laramie”) informed their lender (for purposes of this paragraph, the “Lender”) that
the maximum leverage ratio and the minimum fixed charge coverage ratio tests contained in the loan agreements for the CC Pullman,
CC Grand Forks and CC Laramie projects were not met for the test date of December 31, 2014 and that CC Pullman, CC Grand Forks
and CC Laramie would not be in compliance with their obligations to provide a copy of the Company's consolidated quarterly financial
statements and covenant compliance certificate within the applicable time period required under the respective loan agreements
for the three months ended March 31, 2015. On March 24, 2015, the Company received written notice from the Lender that it would
waive the deficiencies upon receipt of a modification fee of $0.1 million, and on March 31, 2015, the Company was in the process
of negotiating the amount of such modification fee. These (i) financial covenant deficiencies and (ii) financial statement and
covenant compliance certificate deficiencies (which could have entitled the Lender to declare the loans due and payable and exercise
its remedies under the loan documents) have now been addressed in loan modification documents which waive any default related
to such deficiencies. As part of these loan modifications, the loans for CC Pullman and CC Grand Forks have been cross-collateralized.
At March 31, 2015, the deficiencies under the CC Pullman, CC Grand Forks and CC Laramie loans did not constitute an event of default
under any of the Company’s outstanding indebtedness.
CAMPUS
CREST COMMUNITIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Although
the Company no longer has an equity interest in the Kalamazoo Phase 1 property owned by Copper Beech Townhome Communities Twenty
Three, LLC ("CBTC 23"), the Company and the Operating Partnership has a non-recourse carve-out guaranty and a 10% principal
repayment guaranty (the “CBTC 23 Guaranty”) and the Operating Partnership was required to deliver a $1.0 million irrevocable
standby letter of credit on behalf of CBTC 23 for the benefit of the lender (the “CBTC 23 Letter of Credit”). The
Company has received a copy of a notice of default addressed to CBTC 23 dated June 26, 2015, from the special servicer of the
CBTC 23 loan, and although the special servicer has not made a demand under the CBTC 23 Guaranty or the CBTC 23 Letter of Credit,
the Company believes that such a demand may be forthcoming. The default on the CBTC 23 loan does not create a default by the Company
under any of its outstanding indebtedness. The purchase and sale agreement with the Copper Beech sellers requires the Copper Beech
sellers to indemnify the Company and the Operating Partnership for all indemnifiable losses related to the CBTC 23 Guaranty and
the CBTC 23 Letter of Credit, with a maximum indemnity amount of $4.0 million for the 10% principal repayment portion of the CBTC
23 Guaranty (expected to result in a payment obligation of less than $3.0 million) and the CBTC 23 Letter of Credit and with no
maximum indemnity amount for the non-recourse carve-out portion of the CBTC 23 Guaranty. The Company intends to enforce the indemnity
in the Copper Beech purchase and sale agreement if the CBTC 23 Guaranty and/or the CBTC 23 Letter of Credit is called by the servicers
for the CBTC 23 loan. As of March 31, 2015, the Company has recorded a liability of $4.0 million included in other liabilities
in the accompanying consolidated balance sheet for the estimated fair value of these guarantees and a receivable for the
indemnification assets of $4.0 million included in other assets in the accompanying consolidated balance sheet.
Campus
Crest Communities, Inc. and Campus Crest Operating Partnership, LP are guarantors under a credit agreement dated January 14, 2014,
related to the CSH Montreal Debt (the “Montreal Credit Agreement”). Section 10.4(2) of the Montreal Credit Agreement
requires CSH Montreal to provide monthly reports within 45 days of each month end. On April 15, 2015, the parties to the
Montreal Credit Agreement executed a Fourth Amendment to the Montreal Credit Agreement, which waived compliance with the provisions
of Section 10.4(2) until April 15, 2015. The Fourth Amendment also deleted some of the monthly reporting requirements in
Section 10.4(2) of the Montreal Credit Agreement. The failure to deliver the monthly reports under Section 10.4(2) did not constitute
an event of default under the Montreal Credit Agreement because the Fourth Amendment was executed before the applicable notice
and cure period lapsed. Section 10.4(3) of the Montreal Credit Agreement requires CSH Montreal to provide quarterly reports
within 45 days of each fiscal quarter end. On June 22, 2015, the parties to the Montreal Credit Agreement executed a Fifth
Amendment to the Montreal Credit Agreement, which waived compliance with the provisions of Section 10.4(3) until July 31, 2015. The
Fifth Amendment also modified Section 10.4(3) of the Montreal Credit Agreement as it relates to the 45-day reporting requirement
for the fiscal quarter ended June 30, 2015 to extend that period from 45 days to 60 days. As a consequence of executing the
Fourth Amendment and Fifth Amendment, the Company believes it is in compliance with the Montreal Credit Agreement.
As
described in Note 9, in January 2013, the Company (the “Borrower”) entered into the second amended and restated
credit agreement (the "Second Amended and Restated Credit Agreement"), which provides for a $250.0 million senior unsecured
revolving credit facility (the "Revolving Credit Facility") and a $50 million term loan (the “Term Loan”,
together with the “Revolving Credit Facility”, the “Amended Credit Facility”). On May 15, 2015,
the parties to this Amended Credit Facility executed a waiver of the reporting requirements, specifically the waiver states: “(a)
for purposes of the calendar quarter ending in March 2015, (1) the Borrower shall deliver quarterly financials in accordance with
Section 5.03(c) of the Credit Agreement on or before July 31, 2015, and (2) the Borrower shall deliver the quarterly Borrowing
Base Certificate in accordance with clause (i) of Section 5.03(d) of the Credit Agreement on or before July 31, 2015; and (b)
for purposes of the calendar quarter ending in June 2015, (1) the Borrower shall deliver quarterly financials in accordance with
Section 5.03(c) of the Credit Agreement within sixty (60) days after the end of such quarter, and (2) the Borrower shall deliver
the quarterly Borrowing Base Certificate in accordance with clause (i) of Section 5.03(d) of the Credit Agreement within sixty
(60) days after the end of such quarter.” As a consequence of executing this waiver the Company believes it is in compliance
with the Amended Credit Facility.
HSRE
Portfolio Changes
On
May 1, 2015, the Company entered into a nonbinding membership interest purchase and sale agreement with HSRE which will result
in (i) HSRE acquiring all of the ownership interests in the entities which own The Grove at Norman, Oklahoma and The Grove at
Louisville, Kentucky, and (ii) the Company acquiring all of the ownership interests in the entities which own The Grove at Fayetteville,
Arkansas, The Grove at Indiana, Pennsylvania and The Grove at Greensboro, North Carolina. This membership interest purchase and
sale agreement is based upon the book value of each of the properties. The Company has placed $5.0 million in a restricted cash
account related to the closing of this transaction, an amount in excess of the net proceeds needed for the closing of this transaction.
As of the date of this filing, the Company cannot estimate the financial statement effects of this transaction. The closing of
these ownership interest transfers is expected to occur no later than September 30, 2015.
CAMPUS
CREST COMMUNITIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CSH
Montreal Agreement Buyout
In
June of 2015, the Company entered into an agreement with Beaumont, CSH Montreal and certain other entities related to a potential
buyout of the Company's ownership interests in CSH Montreal and the termination of all service agreements with affiliates of the
Company related to the two evo Montreal properties. As part of the closing, the current credit facility will be paid in full,
thereby releasing the Company from all guaranty and indemnity obligations associated with the credit facility currently in place
for the two evo Montreal properties. As of the date of this filing, the Company cannot estimate the financial statement effects
of this transaction. The closing is expected to occur during the third quarter of 2015 and is subject to financing and other customary
closing conditions.
San
Angelo Sale
On
June 15, 2015, the Company entered into a purchase and sale agreement with a third party that would result in the sale of 100%
of the Company’s ownership interest in The Grove at San Angelo, Texas. As of the date of this filing, the Company cannot
estimate the financial statement effects of this transaction. The closing of this transaction is expected to occur no later than
September 30, 2015 and is subject to financing and other customary closing conditions.
ITEM 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
As used herein, references to “we,”
“us,” “our,” the “Company” and “Campus Crest” refer to Campus Crest Communities,
Inc. and our consolidated subsidiaries, including Campus Crest Communities Operating Partnership, LP (the “Operating Partnership”),
except where the context otherwise requires.
Forward-looking Statements
This report contains
certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend such
forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and include this statement for the purpose of complying with these safe harbor provisions.
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," “would” 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 may cause our actual results, performance or achievements to differ materially from those expressed or
implied by forward-looking statements include, but are not limited to, the following:
| · | the
factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2014,
including those set forth under the headings “Business,” “Risk Factors”
and “Management’s Discussion of Financial Condition and Results of Operations”; |
| · | the
performance of the student housing industry in general; |
| · | decreased
occupancy or rental rates at our properties resulting from competition or other factors; |
| · | the
operating performance of our properties; |
| · | the
availability of attractive acquisition opportunities in properties that satisfy our investment
criteria and the success of our acquisition activities, including satisfaction of conditions
to closing for pending acquisitions and, in some cases, the negotiation and execution
of definitive documents and satisfaction of the conditions therein; |
| · | changes
in the admissions or housing policies of the colleges and universities from which we
draw student-tenants; |
| · | changes
in our business and growth strategies and in our ability to consummate and close on acquisitions,
dispositions or additional joint venture transactions; |
| · | our
ability to manage effectively our growth and expansion into new markets, including international
markets, or to integrate acquisitions successfully, including our acquisition of the
CB Portfolio (as defined herein); |
| · | changes
in exchange rates for foreign currencies; |
| · | our
capitalization and leverage level; |
| · | our
capital expenditures; |
| · | the
degree and nature of our competition, in terms of developing properties, consummating
acquisitions and in obtaining student-tenants to fill our properties; |
| · | 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, including
international markets, whether the result of market events or otherwise; |
| · | events
or circumstances that 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; |
| · | the
availability and terms of short-term and long-term financing; |
| · | our
ability to extend the maturity of or refinance our existing debt, or comply with the
financial and other covenants of the agreements that govern our existing debt; |
| · | the
credit quality of our student-tenants and parental guarantors; |
| · | changes
in personnel, including the departure of key members of our senior management, and lack
of availability of, or our inability to attract and retain, qualified personnel; |
| · | unanticipated
increases in financing and other costs, including a rise in interest rates; |
| · | 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; |
| · | environmental
costs, uncertainties and risks, especially those related to natural disasters; |
| · | differences
in cultures, including adapting practices and strategies that have been successful in
our domestic business to international markets; |
| · | changes
in governmental regulations, accounting treatment, tax rates and similar matters; |
| · | legislative
and regulatory changes (including changes to laws governing the taxation of real estate
investments trusts ("REIT")); and |
| · | 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 taxable REIT subsidiaries 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. |
When considering forward-looking
statements, keep in mind the risk factors and other cautionary statements in this report. 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 report. The matters summarized
in this report, including the factors set forth under the headings "Business," "Risk Factors," "Properties"
and "Management’s Discussion and Analysis of Financial Condition and Results of Operations," 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 report, whether as a result of new information,
future events or otherwise.
Overview
Our Company
Campus Crest Communities,
Inc., together with its subsidiaries, referred to herein as the "Company," "we," "us," "our,"
and "Campus Crest," is a self-managed, self-administered REIT focused on owning and managing a diversified portfolio
of high-quality, residence life student housing properties. We were incorporated in the State of Maryland on March 1, 2010.
On October 19, 2010, we completed an initial public offering (the "Offering") of our common stock. As a result
of the Offering and certain formation transactions entered into in connection therewith (the "Formation Transactions"),
we currently own the sole general partner interest and own limited partner interests in Campus Crest Communities Operating Partnership,
LP (the "Operating Partnership"). We hold substantially all of our assets, and conduct substantially all of our business,
through the Operating Partnership. The Offering and Formation Transactions were designed to (i) continue the operations of
Campus Crest Communities Predecessor (the "Predecessor"), (ii) reduce outstanding mortgage and construction loan
indebtedness, (iii) enable us to acquire additional interests in certain of our student housing properties, (iv) fund
joint venture capital requirements, and (v) establish sufficient working capital for general corporate purposes. The exchange
of entities or interests in the Predecessor for units of limited partnership interests in the Operating Partnership ("OP
units") has been accounted for as a reorganization of entities under common control. As a result, our assets and liabilities
have been reflected at their historical cost basis.
On February 26, 2013,
the Company and subsidiaries of the Operating Partnership entered into a purchase and sale agreement with the members of Copper
Beech. Pursuant to the terms of the Initial Purchase Agreement, the Company initially acquired a 48% interest in a portfolio of
35 student housing properties and 3 other entities (the “Copper Beech Portfolio”), for an initial purchase price of
$230.6 million. Subsequent to the Initial Purchase Agreement, the Company formed a joint venture with the sellers of Copper Beech
to develop, construct and manage the Copper Beech at Ames student housing property, which it fully consolidated. On January 30,
2015, the Company completed the acquisition (the “First CB Closing”) of (i) substantially all of the Sellers’
remaining interests in 27 student housing properties, 2 undeveloped land parcels and a corporate office building and (ii) the
Sellers’ remaining interests in Copper Beech at Ames pursuant to that certain Second Amendment (the “Second Amendment”)
to the Initial Purchase Agreement.
Pursuant to the terms
of the Second Amendment, the Company 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 First CB Closing,
and as of March 31, 2015, the Company held a 100% interest in Copper Beech at Ames and the following interests in the Copper Beech
Portfolio:
| · | 100%
interest in 25 student housing properties; |
| · | 100%
interest in 2 undeveloped land parcels and 1 corporate office building; |
| · | 85%
interest in 1 student housing property (Copper Beech Klondike or CBTC 8); |
| · | 84%
interest in 1 student housing property (Copper Beech Northbrook or CBTC 9); |
| · | 48%
interest in 7 student housing properties; and |
| · | no
ownership interest in 1 student housing property (Copper Beech Kalamazoo Phase 1). |
As of April 30, 2015
(the "Second CB Closing"), the Company completed the acquisition of the Sellers’ interests in two of the properties
in the Copper Beech Portfolio in which the Company previously held a 48% interest – Copper Beech San Marcos Phase 1 and
Copper Beech IUP Buy.
As consideration for the additional interests acquired in the First
CB Closing, the Company paid to the Sellers aggregate cash consideration of $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 CB Closing, the Company paid to the Sellers $1.4 million in cash and the Operating Partnership
issued to the Sellers approximately 2.0 million in OP Units. Additionally, the Company surrendered all of its previous 48% ownership
interest in one of the properties in the Copper Beech Portfolio as part of the terms of the Second Amendment.
We believe that we are
one of the largest owners and managers of high-quality student housing properties in the United States, based on beds owned and
under management. As of March 31, 2015, we owned interests in 44 operating student housing The Grove® properties
containing approximately 9,000 apartment units and 24,700 beds. Thirty-six of our operating The Grove® properties
are wholly-owned and eight of our The Grove® properties are owned through joint ventures with HSRE. As of
March 31, 2015, we also owned interests in 35 operating student housing Copper Beech branded properties containing approximately
6,200 apartment units and 16,500 beds. Twenty-six of our operating Copper Beech branded properties are wholly-owned and 9 of our
Copper Beech branded properties are owned through joint ventures with the CB Investors. As of March 31, 2015, we also owned interests
in three operating student housing evo® properties containing approximately 1,500 units and 3,100
beds and owned one wholly-owned redevelopment property containing approximately 170 units and 340 beds. As of March 31, 2015 our
operating portfolio consisted of the following:
| |
Properties in | | |
| | |
Number | | |
Number | |
| |
Operation | | |
Ownership | | |
of Units | | |
of Beds | |
Wholly-owned Grove poperties (1) | |
| 36 | | |
| 100.0 | % | |
| 7,305 | | |
| 19,945 | |
Joint venture Grove properties: | |
| | | |
| | | |
| | | |
| | |
HSRE I | |
| 1 | | |
| 63.9 | % | |
| 192 | | |
| 504 | |
HSRE V | |
| 2 | | |
| 10.0 | % | |
| 456 | | |
| 1,244 | |
HSRE VI | |
| 3 | | |
| 20.0 | % | |
| 664 | | |
| 1,784 | |
HSRE X | |
| 2 | | |
| 30.0 | % | |
| 468 | | |
| 1,240 | |
Total Grove properties | |
| 44 | | |
| | | |
| 9,085 | | |
| 24,717 | |
| |
| | | |
| | | |
| | | |
| | |
Joint venture evo properties: | |
| | | |
| | | |
| | | |
| | |
CSH Montreal | |
| 2 | | |
| 47.0 | % | |
| 1,203 | | |
| 2,223 | |
HSRE IX | |
| 1 | | |
| 30.0 | % | |
| 344 | | |
| 850 | |
Total evo properties | |
| 3 | | |
| | | |
| 1,547 | | |
| 3,073 | |
| |
| | | |
| | | |
| | | |
| | |
CB Portfolio (2) | |
| | | |
| | | |
| | | |
| | |
Wholly-owned Copper Beech properties | |
| 26 | | |
| 100.0 | % | |
| 3,772 | | |
| 10,504 | |
Joint venture Copper Beech properties: | |
| | | |
| | | |
| | | |
| | |
Campus Crest & CB Investors | |
| 7 | | |
| 48.0 | % | |
| 2,048 | | |
| 5,259 | |
Campus Crest & CB Investors | |
| 1 | | |
| 83.6 | % | |
| 166 | | |
| 250 | |
Campus Crest & CB Investors | |
| 1 | | |
| 85.0 | % | |
| 219 | | |
| 486 | |
Total Copper Beech properties | |
| 35 | | |
| | | |
| 6,205 | | |
| 16,499 | |
| |
| | | |
| | | |
| | | |
| | |
Total Portfolio (3) | |
| 82 | | |
| | | |
| 16,837 | | |
| 44,289 | |
|
(1) |
In 2014, we amended
and restated our operating agreement with HSRE resulting in our previously held preferred interest in The Grove at San Angelo,
Texas, and The Grove at Conway, Arkansas, being converted to additional membership units of HSRE-Campus Crest I, LLC. As
of March 31, 2015, we sold from our HSRE joint ventures the following properties: HSRE I - The Grove at Conway, Arkansas and
The Grove at Lawrence, Kansas; HSRE V – The Grove at Stillwater, Oklahoma. |
|
(2) |
As of March 31, 2015
we had an effective interest in the CB Portfolio for the following properties: 100% for 26 properties, 48% for 7 properties,
84% for 1 property and 85% for 1 property. See Note 6 to the accompanying consolidated financial statements. |
|
(3) |
The redevelopment
of our 100% owned property in Toledo, OH, which was acquired in March 2013, is excluded. |
Strategic Repositioning
The Company continues
to execute its strategic repositioning which began during the third quarter of 2014 and includes, among other things:
|
(1) |
Simplifying the business
model by discontinuing all construction and development and focusing on organic growth; |
|
(2) |
Reducing the number
of joint ventures through planned dispositions of certain assets within its joint ventures to simplify asset ownership structure
and reduce exposure to off-balance sheet obligations; |
|
(3) |
Disposing of land
which was previously held for future development (held in land and property held for sale as of December 31, 2014, some of
which were disposed of during the quarter ended March 31, 2015 (see Note 7 to the accompanying consolidated financial statements)
and the remaining of which the Company expects to dispose of during the remainder of 2015); and, |
|
(4) |
Undergoing a review
of strategic alternatives. |
Joint Venture Partners
We are a party to joint
venture arrangements with HSRE, a real estate private equity firm founded in 2005 that has significant real estate asset holdings,
including student housing properties, senior housing/assisted living units, self-storage units and medical office space. As of
March 31, 2015, we hold eight operating joint venture properties with HSRE which include Grove properties. In January 2013, we
entered into a joint venture with HSRE and Brandywine to develop and operate evo at Cira Centre South, which opened in August
2014 for the 2014-2015 academic year. We also have a joint venture with Beaumont which owns two high rise student housing properties
in downtown Montreal, Quebec, Canada.
We own varying equity
interests in these joint ventures, ranging from 10% to 63.9%.
Critical Accounting Policies
Set forth below is the
accounting policy that management believes requires additional disclosures from those listed in our Annual Report on Form 10-K
for the year ended December 31, 2014, filed with the SEC on April 1, 2015 (“2014 Form 10-K”) that are critical to
the preparation of the consolidated financial statements for the three months ended March 31, 2015. Refer to the Company’s
2014 Form 10-K for a discussion of all of our critical accounting policies that are particularly important for an understanding
of the financial position and results of operations presented in the consolidated financial statements set forth elsewhere in
this report. These policies require the application of judgment and assumptions by management and, as a result, are subject to
a degree of uncertainty. The estimates used in the valuations of our property acquisition of the CB Portfolio we believe are critical
in nature for the results of operations for the quarter ended March 31, 2015 which is discussed in more detail below.
The preparation of the
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts
reported in our historical consolidated financial statements and related notes. In preparing these consolidated financial statements,
management has utilized all available information, including its past history, industry standards and the current economic environment,
among other factors, in forming its estimates and judgments of certain amounts included in the historical consolidated financial
statements, giving due consideration to materiality. Our estimates may not be ultimately realized. Application of our critical
accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual
results may differ from these estimates. In addition, other companies in similar businesses may utilize different estimation policies
and methodologies, which may impact the comparability of our results of operations and financial condition to those companies.
Property Acquisitions
The
price that the Company pays to acquire a property is impacted by many factors, including the condition of the buildings and improvements,
the occupancy of the building, favorable or unfavorable financing, and numerous other factors. We allocate the purchase
price of acquired properties to net tangible and identified intangible assets based on relative fair values. Fair value estimates
are based on information obtained from independent appraisals, other market data, information obtained during due diligence and
information related to the marketing and leasing at the specific property. This
includes, among other items, determining the value of the buildings and improvements, land, in-place tenant leases, tax incentive
arrangements, and any debt assumed from the seller. Each of these estimates requires significant judgment and some of the estimates
involve complex calculations. These allocation assessments have a direct impact on our results of operations because if we were
to allocate more value to land there would be no depreciation with respect to such amount or if we were to allocate more value
to the buildings as opposed to allocating to the value of in-place tenant leases, this amount would be recognized as an expense
over a much longer period of time, since the amounts allocated to buildings are depreciated over the estimated lives of the buildings
whereas amounts allocated to in-place tenant leases are amortized over the remaining terms of the leases (generally less than
one year).
Additionally, inputs
and assumptions included in the determination of fair value include expectations of projected net operating income to be earned
and capital expenditures to be incurred at the underlying properties and capitalization rates based on the marketability of each
of the properties and the extent to which the operations of those properties have stabilized. To estimate the fair value of the
property level mortgage debt assumed in property acquisitions, the difference between the market terms and contract terms are
analyzed and the actual debt service payments are discounted at a current market yield rate to determine the fair value of the
debt assumed. These valuation techniques involve Level 3 inputs in the fair value hierarchy and are subjective in nature. Should
different assumptions have been used, the gain of $21.6 million on the consolidation of the CB Portfolio recognized in the consolidated
statement of income and comprehensive income for the three months ended March 31, 2015 could have been materially different. The
$21.6 million gain was based on preliminary estimates.
REIT Qualification Requirements
We have elected to be
treated as a REIT under Sections 856 through 859 of the Internal Revenue Code. Our continued 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 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 taxable income that we distribute currently to our stockholders.
Factors Expected to Affect Our Operating
Results
Unique Leasing Characteristics
Student housing properties
are typically leased by the bed on an individual lease liability basis, unlike multi-family housing where leasing is by the unit.
Individual lease liability limits each student-tenant’s liability to his or her own rent without liability for a roommate’s
rent. A parent or guardian is required to execute each lease as a guarantor unless the student-tenant provides adequate proof
of income. The number of lease contracts that we administer is therefore equivalent to the number of beds occupied rather than
the number of units.
Unlike traditional multi-family
housing, most of our leases commence on the same date. In the case of our typical 11.5-month leases (which provide for 12 equal
monthly payments), this date coincides with the commencement of the fall academic term and typically terminates at the completion
of the last summer school session. As such, we must re-lease each property in its entirety each year, resulting in significant
turnover in our tenant population from year to year. As a result, we are highly dependent upon the effectiveness of our marketing
and leasing efforts during the annual leasing season, which typically begins each October and ends in September of the following
year. As of the start of the fall term for the 2014-2015 and 2013-2014 academic years, we had approximately 39.1% and 41.7%, respectively,
of our current tenants renew their lease for the upcoming academic year.
Results of Operations
Our Business Segments
Management evaluates
operating performance through the analysis of results of operations of three business segments: (i) Grove and evo operations
(ii) Copper Beech operations and (iii) property management services. Management evaluates each segment’s performance
by reference to net operating income, which is a non-GAAP measure, as defined below. The accounting policies of our reportable
business segments are described in more detail in the summary of significant accounting policies footnote (Note 2) to our consolidated
financial statements. Intercompany fees are reflected at the contractually stipulated amounts, as adjusted to reflect our proportionate
ownership of unconsolidated entities.
Grove & evo and Copper Beech Operations
Our Grove & evo and
Copper Beech Operations are comprised of rental and other service revenues, such as application fees, pet fees and late payment
fees. Due to the continuous opening of new properties in consecutive years and annual lease terms that do not coincide with our
reported fiscal (calendar) years, the comparison of our consolidated financial results from period to period may not provide a
meaningful measure of our operating performance. For this reason, we divide the results of operations in our student housing operations
segment between new property operations and "same-store" operations, which we believe provides a more meaningful indicator
of comparative historical performance.
"Same store"
properties are our wholly-owned operating properties acquired or placed in-service prior to the beginning of the earliest period
presented and owned by us and remaining in service through the end of the latest period presented or period being analyzed. "New
properties" are our wholly-owned operating properties that we acquired or placed in service after the beginning of the earliest
period presented or period being analyzed.
We monitor net operating
income (“NOI”) of our student housing properties, which is a non-GAAP financial measure. In general terms, we define
NOI as student housing rental revenue less student housing operating expenses and excluding expenses not specifically tied to
a property. We believe this measure provides an operating perspective not immediately apparent from GAAP operating income (loss)
or net income (loss). We use NOI to evaluate performance on a community-by-community basis because it allows management to evaluate
the impact factors such as lease structure, lease rates and tenant base, which vary by locality, have on our financial performance.
To help make comparisons of NOI between periods more meaningful, we distinguish NOI from our properties that are wholly-owned
and that were in service throughout each period presented (that is, our "same store" properties) from NOI from our other
wholly-owned properties.
We specifically calculate
NOI by adding back to (or subtracting from) net income (loss) attributable to common stockholders the following expenses or charges:
income tax expense, interest expense, equity in loss of unconsolidated entities, preferred stock dividends, depreciation and amortization,
ground lease expense, general and administrative expense, property management services expenses, other expense, loss from discontinued
operations, impairment of unconsolidated entities, write off of other assets and transaction costs. The following income or gains
are then deducted from net income (loss) attributable to common stockholders, adjusted for add backs of expenses or charges: equity
in earnings of unconsolidated entities, gain of purchase of Copper Beech, gain on sale of land and unconsolidated entities, income
tax benefit, other income, income from discontinued operations, and property management services revenues.
NOI excludes multiple
components of net income (loss) attributable to common stockholders (computed in accordance with GAAP) 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 of operations. Therefore, the utility of NOI as a measure of our performance is limited. Additionally, other
companies, including other equity REITs, may use different methodologies for calculating NOI and, accordingly, NOI as disclosed
by such other companies may not be comparable to NOI published herein. We believe that in order to facilitate a clear understanding
of our historical operating results, NOI should be examined in conjunction with net income (loss) as presented in the consolidated
financial statements accompanying this report. NOI should not be considered as an alternative to net income (loss) attributable
to common stockholders as an indicator of our 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.
Management Services
In addition to our wholly-owned
properties, we also provide management services to unconsolidated joint ventures in which we have an ownership interest. We recognize
management fees from these entities as earned in accordance with the property management agreement with these entities, as adjusted
to eliminate our proportionate ownership of each entity.
Comparison of the Three Months Ended
March 31, 2015 and 2014
As of March 31, 2015,
our property portfolio consisted of 62 consolidated operating properties, containing 11,077 apartment units and 30,449 beds, and
20 operating properties held in seven unconsolidated joint ventures, containing 5,760 apartment units and 13,840 beds.
As of March 31, 2014,
our property portfolio consisted of 32 consolidated operating properties, containing 6,283 apartment units and 17,161 beds, and
37 operating properties held in four unconsolidated joint ventures, containing 6,917 apartment units and 18,325 beds.
The following table presents
our results of operations for the three months ended March 31, 2015 and 2014, and the amount of change in these results between
the periods (in thousands):
| |
Three Months Ended March 31, | | |
| |
| |
2015 | | |
2014 | | |
Change ($) | |
Revenues: | |
| | | |
| | | |
| | |
Student housing rental | |
$ | 38,790 | | |
$ | 23,635 | | |
$ | 15,155 | |
Student housing services | |
| 1,310 | | |
| 973 | | |
| 337 | |
Property management services | |
| 229 | | |
| 103 | | |
| 126 | |
Total revenues | |
| 40,329 | | |
| 24,711 | | |
| 15,618 | |
Operating expenses: | |
| | | |
| | | |
| | |
Student housing operations | |
| 17,204 | | |
| 10,613 | | |
| 6,591 | |
General and administrative | |
| 8,038 | | |
| 3,506 | | |
| 4,532 | |
Severance | |
| 508 | | |
| - | | |
| 508 | |
Write-off of other assets | |
| 769 | | |
| - | | |
| 769 | |
Transaction costs | |
| 1,492 | | |
| 585 | | |
| 907 | |
Ground leases | |
| 120 | | |
| 117 | | |
| 3 | |
Depreciation and amortization | |
| 19,756 | | |
| 6,980 | | |
| 12,776 | |
Total operating expenses | |
| 47,887 | | |
| 21,801 | | |
| 26,086 | |
Equity in earnings (losses) of unconsolidated entities | |
| (2,149 | ) | |
| 319 | | |
| (2,468 | ) |
Operating income (loss) | |
| (9,707 | ) | |
| 3,229 | | |
| (12,936 | ) |
| |
| | | |
| | | |
| | |
Nonoperating income (expense): | |
| | | |
| | | |
| | |
Interest expense, net | |
| (7,788 | ) | |
| (3,376 | ) | |
| (4,412 | ) |
Gain on purchase of Copper Beech | |
| 21,642 | | |
| - | | |
| 21,642 | |
Gain on sale of land and unconsolidated joint ventures | |
| 7,748 | | |
| - | | |
| 7,748 | |
Other income (expense) | |
| (55 | ) | |
| 66 | | |
| (121 | ) |
Total nonoperating income (expense), net | |
| 21,547 | | |
| (3,310 | ) | |
| 24,857 | |
Net income before income tax benefit | |
| 11,840 | | |
| (81 | ) | |
| 11,921 | |
Income tax benefit | |
| - | | |
| 190 | | |
| (190 | ) |
Income from continuing operations | |
| 11,840 | | |
| 109 | | |
| 11,731 | |
Income (loss) from discontinued operations | |
| (1,157 | ) | |
| 939 | | |
| (2,096 | ) |
Net income | |
| 10,683 | | |
| 1,048 | | |
| 9,635 | |
Net income (loss) attributable to noncontrolling interest | |
| (2,157 | ) | |
| (15 | ) | |
| (2,142 | ) |
Dividends on preferred stock | |
| 3,050 | | |
| 3,050 | | |
| - | |
Net income (loss) attributable to common stockholders | |
$ | 9,790 | | |
$ | (1,987 | ) | |
$ | 11,777 | |
Student Housing Operations
Student housing operations
revenues (which include student housing rental and student housing services revenues) were $40.1 million and $24.6 million for
the three months ended March 31, 2015 and 2014, respectively. Excluding the $9.2 million of revenues attributable to the Copper
Beech acquisition, revenues increased by $6.3 million, primarily due to the 2014 deliveries of The Grove at Slippery Rock, Pennsylvania,
The Grove at Grand Forks, North Dakota, The Grove at Mt. Pleasant, Michigan, The Grove at Gainesville, Florida and Copper Beech
at Ames, Iowa. Student housing operations expenses were $17.2 million and $10.6 million for the three months ended March 31, 2015
and 2014, respectively. Excluding the $3.3 million in expenses attributable to the Copper Beech acquisition, expense increased
by $3.3 million, which were primarily attributable to the 2014 deliverables mentioned above.
New Property Operations.
In August 2014, we began operations at The Grove at Slippery Rock, Pennsylvania, The Grove at Grand Forks, North Dakota, The
Grove at Mt. Pleasant, Michigan, The Grove at Gainesville, Florida and Copper Beech at Ames, Iowa, which contributed $2.0 million
of NOI ($4.3 million of revenues and $2.3 million of student housing operations expenses) for the three months ended March 31,
2015, compared to no contribution for the three months ended March 31, 2014. In January 2014, we acquired the remaining ownership
interests in The Grove at Denton, Texas, which contributed $0.7 million of NOI ($1.1 million of revenues and $0.4 million in operating
expenses) for the three months ended March 31, 2015, compared to a contribution of $0.4 million for the three months ended March
31, 2014 ($0.7 million of revenues and $0.3 million of operating expenses). The Grove at Denton, Texas is included in “New
Property Operations” as we did not have ownership for the full three months ended March 31, 2014.
"Grove Same-Store"
Property Operations. Our 30 "same-store” properties contributed $13.6 million of NOI ($24.1 million of revenues
and $10.5 million of operating expenses) for the three months ended March 31, 2015 compared to $13.2 million of NOI for the three
months ended March 31, 2014. The Grove at Pullman, Washington, which previously experienced a fire and The Grove at Toledo, Ohio,
under re-development, contributed $0.7 million of NOI ($1.4 million of revenues and $0.7 million of operating expenses) for the
three months ended March 31, 2015 compared to $0.8 NOI for the three months ended March 31, 2014.
“Wholly Owned
Copper Beech” Property Operations. In January 2015, we exercised our option to acquire the remaining interests in 26
properties bringing our interest to a 100% ownership (see Note 6). The Copper Beech properties contributed $5.9 million of NOI
($9.2 million of revenues and $3.3 million of operating expenses) for the three months ended March 31, 2015, compared to no contribution
for the three months ended March 31, 2014.
The following is a reconciliation
of our net income (loss) attributable to common stockholders to NOI for the periods presented, including our same store and new
properties (in thousands):
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Net income (loss) attributable to common stockholders | |
$ | 9,790 | | |
$ | (1,987 | ) |
Net income (loss) attributable to noncontrolling interests | |
| (2,157 | ) | |
| (15 | ) |
Preferred stock dividends | |
| 3,050 | | |
| 3,050 | |
Income tax (benefit) expense | |
| - | | |
| (190 | ) |
Severance | |
| 508 | | |
| - | |
Gain on purchase of Copper Beech | |
| (21,642 | ) | |
| - | |
Gain on sale of land and unconsolidated entities | |
| (7,748 | ) | |
| - | |
Other (income) expense | |
| 55 | | |
| (66 | ) |
(Income) loss from discontinued operations | |
| 1,157 | | |
| (939 | ) |
Interest expense, net | |
| 7,788 | | |
| 3,376 | |
Equity in (earnings)/losses of unconsolidated entities | |
| 2,149 | | |
| (319 | ) |
Depreciation and amortization | |
| 19,756 | | |
| 6,980 | |
Ground lease expense | |
| 120 | | |
| 117 | |
General and administrative expense | |
| 8,038 | | |
| 3,506 | |
Write-off of other assets | |
| 769 | | |
| - | |
Transaction costs | |
| 1,492 | | |
| 585 | |
Property management services revenues | |
| (229 | ) | |
| (103 | ) |
Total NOI | |
$ | 22,896 | | |
$ | 13,995 | |
Grove same store properties NOI | |
$ | 13,602 | | |
$ | 12,814 | |
Copper Beech NOI | |
$ | 5,884 | | |
$ | - | |
New properties NOI | |
$ | 2,689 | | |
$ | 422 | |
Grove Pullman and Toledo NOI | |
$ | 721 | | |
$ | 759 | |
Property Management Services
Property management services
revenues increased by $0.1 million for the three months ended March 31, 2015 compared to the same periods in 2014 primarily as
a result of five new property management contracts that came on line in August 2014 (The Grove at Greensboro, North Carolina,
The Grove at Louisville, Kentucky, evo at Cira Centre South, Pennsylvania, evo à Square Victoria, Montreal, Quebec, Canada,
and evo à Sherbrooke, Montreal, Quebec, Canada).
General and Administrative
General and administrative
expenses were $8.0 million and $3.5 million for the three months ended March 31, 2015 and 2014, respectively. The increase of
$4.5 million from the prior period is primarily due to no longer capitalizing certain costs to our construction and development
segments of our business as we discontinued construction and development activities in 2014, as well as increased professional
fees due to strategic repositioning and general and administrative costs at Copper Beech.
Severance Costs
Severance costs for the
three months ended March 31, 2015 of $0.5 million related to severance expense for a former executive.
Write-off of Other Assets
Write-off of other assets
was $0.8 million for the three months ended March 31, 2015, $0.3 million of which was related to our final settlement for the
Pullman insurance claim, for which we settled for $0.3 million less than we had originally estimated, and as a result, we wrote
off $0.3 million in receivables which were included in other assets during the quarter ended March 31, 2015. We have received
the remaining $4.3 million of insurance proceeds during the third quarter of 2015. The remaining $0.5 million consisted of various
other immaterial items.
Transaction Costs
Transaction costs were
$1.5 million for the three months ended March 31, 2015, primarily attributable to consents, professional fees and other related
costs totaling $1.3 million related to the Copper Beech acquisition, with the remaining $0.2 million related to the Montreal transaction.
Depreciation and Amortization
Depreciation and amortization
expense was $19.8 million and $7.0 million for the three months ended March 31, 2015 and 2014, respectively. Excluding the $11.5
million attributable to the Copper Beech acquisition ($8.7 million of amortization expense of in-place lease intangible assets
and $2.8 million of depreciation expense), depreciation and amortization increased by $1.3 million, primarily attributable to
the 2014 deliveries of The Grove at Slippery Rock, Pennsylvania, The Grove at Grand Forks, North Dakota, The Grove at Mt. Pleasant,
Michigan, The Grove at Gainesville, Florida and Copper Beech at Ames, Iowa. See Note 6 for further details.
Equity in Losses of Unconsolidated Entities
Equity in losses of unconsolidated
entities, which represents our share of the net loss from entities in which we have a non-controlling interest, decreased by $2.5
million for the three months ended March 31, 2015 compared to the same periods for 2014. This decrease is primarily losses of
$1.8 million resulting (compared to equity in earnings of $0.3 million for the same period in 2014) from our Montreal operations.
Copper Beech equity in losses was $0.5 million for the first quarter of 2015 compared to $0.1 million for the same period in 2014.
Interest Expense
Interest expense was
$7.8 million and $3.4 million for the three months ended March 31, 2015 and 2014, respectively. Excluding the $1.3 million increase
attributable to the Copper Beech acquisition, interest expense increased by $3.1 million. This increase was primarily attributable
to capitalized interest of $1.9 million during the first quarter of 2014 (compared to none during the first quarter of 2015) and
higher debt balances, primarily associated with additional amounts outstanding on the Company’s line of credit.
Gain on purchase of Copper Beech
For the three months
ended March 31, 2015, a preliminary gain of $21.6 million was recognized in connection with the purchase of the First Copper Beech
Closing, a business combination in which the Company acquired a significant portion of the CB Portfolio with the transaction closing
on January 30, 2015. See Note 6 for further details.
Gain on sale of land and unconsolidated
joint ventures
In connection with the
previously announced strategic repositioning we recognized a $3.1 million gain from the sale of a portfolio of six undeveloped
land parcels. We also recognized a $4.6 million gain from the sale of The Grove at Lawrence, Kansas and The Grove at Conway, Arkansas.
See Note 7 to the accompanying consolidated financials for further discussion of both of these transactions.
Income (Loss) from Discontinued Operations
In September 2014, we
discontinued our development and construction services companies due to restructuring activities and accordingly reclassified
the results of these operations to income (loss) from discontinued operations in the accompanying consolidated statements of operations
and comprehensive income (loss) for the periods presented.
For the three months
ended March 31, 2015, we recorded expenses of $1.2 million due to the wind down of our construction and development operations.
No construction and development revenues were recorded during the three months ended March 31, 2015. For the three months ended
March 31, 2014, we recorded revenue from our construction and development operations of $7.3 million and expenses of $6.4 million
resulting in income of $0.9 million.
Dividends on Preferred Stock
Dividends on preferred
stock for the three months ended March 31, 2015 were $3.1 million with no change from the three months ended March 31, 2014. The
Company did not declare dividends on its preferred stock during the three months ended March 31, 2015. Although not declared,
these dividends have been included in the calculation of net income (loss) attributable to common shareholders in the consolidated
statements of operations and comprehensive income (loss). These dividends will accumulate at the effective annual rate of $2.00
per share until paid.
Net income (loss) attributable to noncontrolling
interests
Net income attributable
to noncontrolling interests increased by $2.1 million primarily related to income allocated to Copper Beech Investors who received
OP Units as part of the First Copper Beech Closing.
Cash Flows
Net cash provided by
operating activities was $12.5 million for the three months ended March 31, 2015 as compared to $2.3 million for the three months
ended March 31, 2014, an increase of $10.2 million. Net income adjusted for non-cash items provided $5.9 million for the three
months ended March 31, 2015 as compared to $10.2 million for the three months ended March 31, 2014, a decrease of $4.3 million.
Working capital provided $6.6 million for the three months ended March 31, 2015 as compared to $7.9 million used for the three
months ended March 31, 2014, an increase of $14.5 million. This increase is primarily comprised of reduced payments of accounts
payable of $3.7 million, an increase in collected construction billings of $1.1 million, and a change of $10.3 million in other
operating items, which includes increases in security deposits and prepaid rents, collections of other receivables, including
proceeds received for renovation work performed at The Grove at Stillwater, OK of $1.9 million, and changes in various other operating
items.
Net
cash used in investing activities totaled $35.5 million for the three months ended March 31, 2015 as compared to $64.3 million
for the three months ended March 31, 2014, a decrease of $28.8 million. Investments in properties under development was $16.4
million less for the quarter in 2015 compared to the same period last year due to the decrease in construction activity; in 2015,
we continued paying vendors for the finalization of payables related to 2014 new property deliveries. During the three months
ended March 31, 2015, the Company received $28.3 million from the sale of six undeveloped land parcels (see Note 7 of the accompanying
consolidated financial statements). Additionally during the first quarter of 2015, we paid $53.8 million, net of cash acquired
for the First CB Closing (see Note 6 of the accompanying consolidated financial statements). During the first quarter of 2014,
we invested $31.9 million into our investment in CSH Montreal.
Net cash provided by
financing activities totaled $43.0 million for the three months ended March 31, 2015 as compared to $44.3 million for the three
months ended March 31, 2014, a decrease of $1.3 million. This $1.3 million decrease is comprised of several items. Proceeds from
mortgage and construction loans, net of repayments, increased by $5.9 million and proceeds from the line of credit and other debt,
net of repayments, decreased by $11.4 million from the previous period. Additionally, dividends paid to common stockholders decreased
by $4.8 million.
Liquidity and Capital Resources
Our capital resources
include accessing the public debt and equity markets, when available, mortgage and construction loan financing and immediate access
to the Amended Credit Facility (discussed below).
As a REIT, we generally
must distribute annually at least 90% of our REIT taxable income, excluding any net capital gain, in order for corporate income
tax not to apply to earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less
than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income.
In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our stockholders in
a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to
our stockholders to comply with the requirements of the Internal Revenue Code and to avoid paying corporate tax on undistributed
income. Additionally, we intend to make distributions that exceed these requirements. We may need to obtain financing to meet our
distribution requirements because:
| · | our income may not be matched by our related
expenses at the time the income is considered received for purposes of determining taxable income; and |
| · | non-deductible capital expenditures, creation
of reserves or debt service requirements may reduce available cash but not taxable income. |
In these circumstances,
we may be forced to obtain third-party financing on terms we might otherwise find unfavorable, and we cannot provide assurance
that we will be able to obtain such financing. Alternatively, if we are unable or unwilling to obtain third-party financing on
the available terms, we could choose to pay a portion of our distributions in stock instead of cash, or we may fund distributions
through asset sales.
Principal Capital Resources
In January 2013, we
entered into a credit agreement (the "Second Amended and Restated Credit Agreement") with Citibank, N.A. and certain
other parties. The Second Amended and Restated Credit Agreement provides for a senior unsecured credit facility (the "Revolving
Credit Facility") of up to $250.0 million, with sub-limits of $30.0 million for swing line loans and $15.0 million for letters
of credit. The Second Amended and Restated Credit Agreement also provides for a term loan of $50.0 million (the "Term Loan"
and, together with the Revolving Credit Facility, the "Amended Credit Facility").
As of March 31, 2015,
we had $213.5 million outstanding under our Revolving Credit Facility and $50.0 million outstanding under the Term Loan. The amounts
outstanding under our Revolving Credit Facility and Term Loan, as well as outstanding letters of credit, will reduce the amount
that we may be able to borrow under this facility for other purposes. As of March 31, 2015, we had $36.5 million in borrowing capacity
under our Revolving Credit Facility, and amounts borrowed under the facility are due at its maturity in January 2017, subject to
a one-year extension, which we may exercise at our option, subject to the satisfaction of certain terms and conditions, including
the payment of an extension fee. The amount available for us to borrow under the Amended Credit Facility is based on the sum of
(a) the lesser of (i) 60.0% of the "as-is" appraised value of our properties that form the borrowing base of the Amended
Credit Facility and (ii) the amount that would create a debt service coverage ratio of not less than 1.5, and (b) 50% of the aggregate
of the lesser of (i) the book value of each of our development assets (as such term is defined in the Second Amended and Restated
Credit Agreement) and (ii) the "as-is" appraised value of each of our development assets, subject to certain limitations
in the Second Amended and Restated Credit Agreement.
We incur an unused
fee on the balance between the amount available under the Revolving Credit Facility and the amount outstanding under the Revolving
Credit Facility (i) of 0.30% per annum if our average borrowing is less than 50.0% of the total amount available or (ii) 0.25%
per annum if our average borrowing is greater than 50.0% of the total amount available.
Additionally, the
Amended Credit Facility has an accordion feature that allows us to request an increase in the total commitments from $300.0 million
to $600.0 million, subject to conditions. Amounts outstanding under the Amended Credit Facility bear interest at a floating rate
equal to, at our election, the Eurodollar Rate or the Base Rate (each as defined in the Second Amended and Restated Credit Agreement)
plus a spread that depends upon our leverage ratio. The spread for borrowings under the Revolving Credit Facility ranges from 1.75%
to 2.50% for Eurodollar Rate based borrowings and from 0.75% to 1.50% for Base Rate based borrowings, and the spread for the Term
Loan ranges from 1.70% to 2.45% for Eurodollar Rate based borrowings and
from 0.70% to 1.45% for Base Rate based borrowings. At March 31, 2015, the interest rate on the Revolving Credit Facility borrowings
and Term Loan was 2.69% and 2.64% respectively.
Our ability to borrow
under the Amended Credit Facility is subject to our ongoing compliance with a number of customary financial covenants, including:
| · | a maximum leverage ratio of not greater
than 0.65:1.00; |
| · | a minimum fixed charge coverage ratio
of not less than 1.30:1.00; |
| · | a minimum ratio of fixed rate debt and
debt subject to hedge agreements to total debt of not less than 66.67%; |
| · | a maximum secured recourse debt ratio
of not greater than 20.0%; |
| · | a minimum tangible net worth of not less
than the sum of $330,788,250 plus an amount equal to 75.0% of the net proceeds of any additional equity issuances; and |
| · | a maximum secured debt ratio of not greater
than 47.5%. |
On February 25, 2015,
we amended the Amended Credit Facility to address a default with regard to certain financial covenants (see Note 9). In such amendment,
the dividend payout ratio was amended to be calculated on a rolling twelve month pro forma basis based on an assumed quarterly
dividend of $0.09 per share on our Common Stock (which was the level established by our Board for the fourth quarter of 2014) and
the leverage ratio, secured debt ratio and fixed charge coverage ratio covenants were modified for a relief period beginning on
December 31, 2014 and ending on September 30, 2015.
We and certain of
our subsidiaries guarantee the obligations under the Amended Credit Facility, and we and certain of our subsidiaries have provided
a negative pledge against specified assets (including real property), stock and other interests.
As of March 31, 2015,
after receipt of waivers and amendments, we were in compliance with the above financial covenants with respect to our Amended Credit
Facility. We intend to explore alternatives for reducing our leverage and maintaining compliance with our financial covenants,
including the possible issuance of additional equity, sales of assets, cost controls or other measures. Although the Amended Credit
Facility contains a cross-default provision, as of March 31, 2015, there were no defaults under any of the Company’s other
credit facilities that triggered an event of default under the Amended Credit Facility.
Short-Term Liquidity Needs
We believe that we
will have sufficient capital resources as a result of operations and the borrowings in place to fund ongoing operations and distributions
required to maintain REIT compliance. We anticipate using our cash flow from continuing operations, cash and cash equivalents,
the sale of assets, and Amended Credit Facility availability to fund our business operations, cash dividends and distributions,
debt amortization, and recurring capital expenditures. Capital requirements for significant acquisitions and development projects
may require funding from borrowings and/or equity offerings.
Long-Term Liquidity Needs
Our long-term liquidity
needs consist primarily of funds necessary to pay for non-recurring capital expenditures, potential acquisitions of properties
and payments of debt at maturity. Long-term liquidity needs may also include the payment of unexpected contingencies, such as remediation
of unknown environmental conditions at our properties or at additional properties that we develop or acquire, or renovations necessary
to comply with the Americans with Disabilities Act or other regulatory requirements. In the future, we may seek additional long-term
secured and unsecured debt, including borrowings under our Revolving Credit Facility, the issuance of debt securities, the issuance
of equity securities and equity-related securities (including OP units), property dispositions and joint venture transactions.
We believe that we will have access to these sources of capital to fund our long-term liquidity requirements, but we cannot provide
any assurance that this will be the case, especially in difficult market conditions.
Covenant
Renegotiation
On February 25, 2015,
the Company received a unanimously approved waiver under its amended credit facility that provides relief from certain financial
covenants during a relief period that runs from December 31, 2014 until and including September 30, 2015. During the relief period
the following new measurements will apply to covenant tests: maximum leverage ratio of not greater than 0.65:1.00; maximum secured
debt ratio of not greater than 47.5%; minimum fixed charge ratio of not less than 1.30:1.00; and a dividend payout ratio of not
more than 105.0% calculated on a pro forma basis that applies the current quarterly dividend of $0.090 on a trailing twelve month
basis.
Although the Company
is currently in compliance with the terms of its Second Amended and Restated Credit Agreement, the Company’s Board has determined,
based on an evaluation by management of the Company’s ability to satisfy all financial covenants in the credit agreement
for the next four quarters, not to declare or pay dividends on its Common Stock or Series A Preferred Stock for the first quarter
of 2015. In addition, the Board does not currently intend to declare or pay dividends on its Common Stock or Series A Preferred
Stock for the remainder of 2015 unless the Company experiences sufficient improvement in its operating results, including successfully
completing the sale of certain assets and enhancing our liquidity position by raising additional capital and/or refinancing its
existing credit facilities.
Commitments
The following table
summarizes our contractual commitments as of March 31, 2015 (including future interest payments) (in thousands):
Contractual Obligations | |
Total | | |
2015 | | |
2016-2017 | | |
2018-2019 | | |
Thereafter | |
| |
| | |
| | |
| | |
| | |
| |
Long-Term Debt Obligations | |
$ | 925,133 | | |
$ | 58,643 | | |
$ | 628,780 | | |
$ | 174,154 | | |
$ | 63,556 | |
Interest Payments on Outstanding Debt Obligations | |
| 94,345 | | |
| 28,992 | | |
| 47,045 | | |
| 11,737 | | |
| 6,571 | |
Operating Lease Obligations | |
| 35,817 | | |
| 1,923 | | |
| 4,233 | | |
| 2,840 | | |
| 26,821 | |
Purchase Obligations | |
| 1,608 | | |
| 1,608 | | |
| - | | |
| - | | |
| - | |
Total (1) | |
$ | 1,056,903 | | |
$ | 91,166 | | |
$ | 680,058 | | |
$ | 188,731 | | |
$ | 96,948 | |
| (1) | Excludes joint venture debt of $36.3 million that matures in May 2015 and July 2015, of which we
are a 10.0% owner; $53.7 million that matures in May 2015, September 2015 and December 2015, of which we are a 20.0% owner; $132.7
million that matures in July 2016, September 2016 and September 2018, of which we are a 30.0% owner; $82.1 million that matures
in January 2016, of which we are a 47.0% owner; $195.8 million that matures in October 2015, June 2016, September 2020 and October
2020, of which we are a 48.0% owner; and $11.2 million that matures in May 2015, of which we are 63.9% owner. We are the guarantor
of these debt obligations. |
Off-Balance Sheet Arrangements
Joint Ventures
We have investments
in real estate ventures with the CB Investors, HSRE, Brandywine and Beaumont that are not consolidated by us. These joint ventures
are engaged primarily in owning and managing student housing properties in the United States and Canada. Along with the joint venture
partners, we hold joint approval rights for major decisions, including those regarding property acquisition and disposition as
well as property operations. As such, we hold noncontrolling interests in these joint ventures and account for them under the equity
method of accounting.
We are the guarantor
of the construction and mortgage debt and revolving credit facilities of our ventures with HSRE and Beaumont. Detail of our unconsolidated
investments at March 31, 2015 is presented in the following table (in thousands):
| |
| | |
| | |
| | |
| | |
Debt |
|
| |
| | |
| | |
| | |
| | |
| | |
Weighted | | |
|
|
| |
| | |
| | |
Number of | | |
| | |
| | |
Average | | |
|
|
| |
Our | | |
Year | | |
Properties In | | |
Total | | |
Amount | | |
Interest | | |
|
|
Unconsolidated Entities | |
Ownership | | |
Founded | | |
Operation | | |
Investment | | |
Outstanding | | |
Rate | | |
Maturity Date
/ Range |
|
HSRE-Campus Crest I, LLC | |
| 63.9 | % | |
| 2009 | | |
| 1 | | |
$ | 3,719 | | |
$ | 11,166 | | |
| 2.68 | %(1) | |
5/09/2015 |
(3) |
HSRE-Campus Crest V, LLC | |
| 10.0 | % | |
| 2011 | | |
| 2 | | |
| - | | |
| 36,289 | | |
| 2.88 | %(1) | |
5/05/2015 – 7/20/2015 |
(3) |
HSRE-Campus Crest VI, LLC | |
| 20.0 | % | |
| 2012 | | |
| 3 | | |
| 6,645 | | |
| 53,706 | | |
| 2.49 | %(1) | |
5/08/2015 – 12/19/2015 |
(3) |
HSRE-Campus Crest IX, LLC | |
| 30.0 | % | |
| 2013 | | |
| 1 | | |
| 19,394 | | |
| 90,081 | | |
| 2.38 | %(1) | |
7/25/2016 |
|
HSRE-Campus Crest X, LLC | |
| 30.0 | % | |
| 2013 | | |
| 2 | | |
| 7,836 | | |
| 42,579 | | |
| 2.36 | %(1) | |
9/06/2016 – 9/30/2018 |
|
CB Portfolio | |
| 48.0 | % | |
| 2013 | | |
| 7 | | |
| 50,674 | | |
| 195,791 | | |
| 5.41 | %(2) | |
10/01/2015 – 10/01/2020 |
|
CSH Montreal | |
| 47.0 | % | |
| 2013 | | |
| 2 | | |
| 5,515 | | |
| 82,113 | | |
| 5.69 | %(1) | |
1/13/2016 |
|
Total
unconsolidated entities | |
| | | |
| | | |
| 18 | | |
$ | 93,783 | | |
$ | 511,725 | | |
| 4.12 | % | |
|
|
| (1) | Variable interest rates. |
| (2) | Comprised of fixed rate debt. |
| (3) | Certain loans which matured in May 2015 and are scheduled to mature during July 2015 are in the
process of being refinanced as of the date of this filing. |
Funds From Operations (FFO)
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 NAREIT. FFO, as defined by NAREIT, represents net income (loss) determined in accordance
with U.S. GAAP, excluding extraordinary items as defined under U.S. 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. In addition, in October 2011, NAREIT communicated to its members
that the exclusion of impairment write-downs of depreciable real estate is consistent with the definition of FFO.
We present FFO attributable
to common stockholders 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 securities analysts, investors, and other interested parties 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 of 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 consolidated financial statements accompanying this report. FFO attributable to common stockholders
should not be considered as an alternative to net income (loss) (computed in accordance with U.S. GAAP) as an indicator of our
properties’ financial performance or to cash flow from operating activities (computed in accordance with U.S. 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.
The following table
presents a reconciliation of our FFO attributable to common stockholders to our net income (loss) attributable to common stockholders
for the periods presented (in thousands):
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Net income (loss) attributable to common stockholders | |
$ | 9,790 | | |
$ | (1,987 | ) |
Real estate related depreciation and amortization | |
| 19,254 | | |
| 6,677 | |
Real estate related depreciation and amortization from unconsolidated entities | |
| 3,370 | | |
| 7,333 | |
Gain on purchase of Copper Beech(1) | |
| (21,642 | ) | |
| - | |
Gain on sale of assets(2) | |
| (7,748 | ) | |
| - | |
FFO attributable to common stockholders(3) | |
$ | 3,024 | | |
$ | 12,023 | |
| (1) | Includes purchase of remaining interests in 26 wholly owned properties and the purchase of additional
interests in 2 operating properties with varying interests. (See Note 6 of the accompanying consolidated financial statements.) |
| (2) | Includes sale of land parcels and ownership interests in HSRE I and HSRE V. (See Note 7 of the
accompanying consolidated financial statements.) |
| (3) | The fair value debt and purchase accounting adjustments included in equity in earnings related
to Copper Beech were $0.6 million and $1.8 million for the three months ended March 31, 2015 and 2014, respectively. |
In addition to FFO
attributable to stockholders, we believe it is also a meaningful measure of our performance to adjust FFO attributable to stockholders
to exclude the transaction costs (including those within equity in earnings) and fair value of debt adjustments within our investment
in Copper Beech. Also excluded are write-offs, severance expense, and discontinued operations. Excluding these items adjusts FFO
attributable to stockholders to be more reflective of operating results prior to capital replacement or expansion, debt amortization
of principal, impairments, discontinued operations, or other commitments and contingencies. This measure is referred to herein
as FFOA attributable to stockholders.
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
FFO attributable to common stockholders | |
$ | 3,024 | | |
$ | 12,023 | |
Elimination of transaction costs(4) | |
| 1,492 | | |
| 585 | |
Elimination of fair value debt and purchase accounting adjustments at our investment in Copper Beech(5) | |
| (637 | ) | |
| (1,754 | ) |
Elimination of write-off of other assets(6) | |
| 769 | | |
| - | |
Elimination of severance(7) | |
| 508 | | |
| - | |
Elimination of discontinued operations(8) | |
| 1,157 | | |
| (939 | ) |
Funds from operations adjusted (FFOA) attributable to common stockholders | |
$ | 6,313 | | |
$ | 9,915 | |
| (4) | Includes costs incurred in connection with Copper Beech and CSH Montreal including our proportional
share of costs incurred within the ventures. |
| (5) | Includes our proportionate share of non-cash fair value debt and other purchase accounting adjustments
in our investment in Copper Beech accounted for under the equity method. |
| (6) | During three months ended March 31, 2015, the Company recorded $0.8 million of impairments of other
assets related to various balance sheet adjustments. |
| (7) | We recognized severance expense of $0.5 million, of which $0.4 million relates to the acceleration
of restricted shares. |
| (8) | In connection with the Company’s strategic repositioning initiatives, we discontinued all
construction and development operations, which resulted in the income (loss) from discontinued operations of $(1.2) million and
$0.9 million for the three months ended March 31, 2015 and 2014, respectively. |
Inflation
Our student housing
leases typically do not have terms that extend beyond 12 months. Accordingly, although on a short-term basis we would be required
to bear the impact of rising costs resulting from inflation, we have the opportunity to raise rental rates at least annually to
offset any rising costs. However, our ability to raise rental rates could be limited by a weak economic environment, declining
student enrollment at our principal colleges and universities or competition in the marketplace.
Recent Accounting Pronouncements
See Note 2 in the accompanying consolidated
financial statements.
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
As of March 31, 2015,
our Revolving Credit Facility bears interest at a floating rate equal to, at our election, the Eurodollar Rate or the Base Rate
(each as defined in our revolving credit facility) plus a spread. The spread for borrowing under the Revolving Credit Facility
ranges from 1.75% to 2.50% for Eurodollar Rate based borrowing and from 0.75% to 1.50% for Base Rate borrowings, and the spread
for the Term Loan ranges from 1.70% to 2.45% for Eurodollar Rate based borrowing and from 0.70% to 1.45% for Base Rate based borrowings.
At March 31, 2015, the spread on our Revolving Credit Facility and Term Loan was 2.69% and 2.64%, respectively.
We are exposed to
market risk from changes in interest rates. We seek to limit the impact of interest rate changes on earnings and cash flows and
to lower the overall borrowing costs by closely monitoring our variable rate debt and converting such debt to fixed rates when
we deem such conversion advantageous. As of March 31, 2015, $447.5 million of our aggregate indebtedness (47.8% of total indebtedness)
was subject to variable interest rates.
If market rates of
interest on our variable rate long-term debt fluctuate by 1.0%, interest cost would increase or decrease, depending on rate movement,
future earnings and cash flows by $4.5 million, assuming that the amount outstanding under our variable rate debt remains at $447.5
million, the balance as of March 31, 2015.
We do and may in the
future, continue to use derivative financial instruments to manage, or hedge, interest rate risks related to such variable rate
borrowings. We do not, and do not expect to, use derivatives for trading or speculative purposes, and we expect to enter into contracts
only with major financial institutions.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by SEC
Rule 13a-15(b), we have carried out an evaluation, under the supervision of and with the participation of management, including
our Interim Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our management concluded
that our disclosure controls and procedures for the periods covered by this report were not effective, as of March 31, 2015, because
of the material weaknesses in internal control over financial reporting described in Part II, Item 9A of our Annual Report on Form
10-K for the year ended December 31, 2014, filed with the SEC on April 1, 2015 (the “2014 Form 10-K”). Management has
concluded that the material weaknesses that were present at December 31, 2014 were also present at March 31, 2015.
Notwithstanding the
assessment that our internal controls over financial reporting were not effective and that there were material weaknesses as identified
in the 2014 Form 10-K, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2015, fairly present our financial condition, results of operations and cash flows in all material respects.
Remediation Plan
As previously disclosed
in the 2014 Form 10-K, to remediate the material weaknesses described under the subheading “Management’s Annual Report
on Internal Control Over Financial Reporting” in Part II, Item 9A of the 2014 Form 10-K, we plan to implement the remediation
initiatives described under the subheading “Plan for Remediation of Material Weaknesses” in Part II, Item 9A of the
2014 Form 10-K and will continue to evaluate the remediation and may in the future implement additional measures.
In connection with
these efforts, in April 2015 our Board of Directors engaged Alvarez & Marsal North America, LLC (“Alvarez & Marsal”),
a leading management consulting firm, and appointed David Coles and John Makuch, both Managing Directors at Alvarez & Marsal,
as our interim Chief Executive Officer and our interim Chief Financial Officer, respectively. We are also in the process of engaging
a third party accounting firm to support our internal audit function and provide additional support to the management team and
the Audit Committee with respect to the internal control remediation initiatives. Our management believes the remediation measures
described in the 2014 Form 10-K will remediate the identified material weaknesses and strengthen our internal control over financial
reporting. As management continues to evaluate and work to improve our internal control over financial reporting, it may be determined
that additional measures must be taken to address the material weaknesses identified in Part II, Item 9A of the 2014 Form 10-K,
or it may be determined that we need to modify certain of the remediation measures described in the 2014 Form 10-K.
Changes in Internal Control over Financial Reporting
We plan to take actions
to remediate the material weaknesses related to our internal control over financial reporting, as described above. However, there
were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules
13a-15 and 15d-15 under the Exchange Act that occurred during the quarter ended March 31, 2015 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
Item 1.
Legal Proceedings
In the normal course
of business, we are subject to claims, lawsuits and legal proceedings. In addition to the matter described below, we are involved
in various routine legal proceedings arising in the ordinary course of business. Although the outcomes of such routine legal proceedings
cannot be predicted with certainty, in the opinion of management, the ultimate resolution of such routine matters will not have
a material adverse effect on our financial position or results of operations.
On January 21, 2015,
we and certain of our subsidiaries were named as defendants in a lawsuit filed in the 7th Division of the Jefferson Circuit Court
in Jefferson County in Louisville, Kentucky. The case arose from an individual who fell to his death at a construction site located
at 2501 South 4th Street, Louisville, Jefferson County, Kentucky. Also named as co-defendants in the case are three other companies
associated with the construction and/or employment of the deceased individual. The plaintiffs allege, among other things, we were
negligent and/or allowed a dangerous or hazardous condition to exist on the premises. The plaintiffs’ initial complaint did
not specify the amount of damages sought. We have filed our responsive pleadings. Based upon the totality of the circumstances,
including the existence of insurance coverage and anticipated indemnity from third-parties, we do not believe that the lawsuit,
if adversely determined, would have a material adverse effect on our financial position or results of operations.
Item 1A.
Risk Factors
For a discussion of
our potential risks and uncertainties, see the section entitled "Risk Factors" beginning on page 9 of our Annual Report
on Form 10-K for the year ended December 31, 2014. In addition to those risk factors, we have identified the following new
or updated risk factors based on our further evaluation and developments subsequent to the filing of the Form 10-K:
Our failure to prepare and file timely
our periodic reports with the SEC may make it more difficult for us to access the public markets to raise debt or equity capital
and may result in noncompliance with the reporting covenants of the agreements that govern our existing debt.
We did not file our
Annual Report on Form 10-K for the year ended December 31, 2014 or this Quarterly Report for the quarter ended March 31, 2015 within
the time frame required by the SEC. As a result of our failure to file our Annual Report and this Quarterly Report by the filing
date required by the SEC (including the grace period permitted by Rule 12b-25 under the Exchange Act), we are not eligible to file
a Form S-3 registration statement to conduct public offerings until our filings with the SEC have been timely made for a full year.
Our ineligibility to use Form S-3 during this time period may have a negative impact on our ability to quickly access the public
capital markets because we would be required to file a long-form registration statement and wait for the SEC to declare such registration
statement effective. This may limit our ability to access the public markets to raise debt or equity capital. Our limited ability
to access the public markets could prevent us from pursuing transactions or implementing business strategies that we believe would
be beneficial to our business.
In addition, the documents
that govern our outstanding indebtedness contain customary reporting requirements. If we are unable to timely file reports with
the SEC, we may be required to seek further waivers of reporting covenants from our lender group. The cost of our obtaining an
amendment or waiver in the future could be significant, and further, there can be no assurance that we would be able to obtain
an amendment or waiver if necessary in the future. Our failure to comply with the reporting covenants of the agreements that govern
our existing debt could have a material adverse effect on our financial condition.
Our indebtedness exposes us to a
risk of default and reduces our free cash flow, which could materially and adversely affect us.
As of March 31, 2015,
our total consolidated indebtedness was approximately $934.5 million. Our debt service obligations expose us to the risk of default
and reduced cash available to invest in our business or pay distributions that are necessary to qualify and remain qualified as
a REIT. Our ability to meet the ongoing payment obligations of our indebtedness depends on our ability to generate significant
cash flow in the future. Our ability to generate cash flow, to some extent, is subject to general economic, financial, competitive,
legislative and regulatory factors, as well as other factors that are beyond our control. We cannot assure you that our business
will generate cash flow from operations, or that capital will be available to us, in amounts sufficient to enable us to meet our
payment obligations under our exchangeable senior notes, our credit agreements and our outstanding preferred stock and to fund
our other liquidity needs. If we are not able to generate sufficient cash flow to service these obligations, we may need to refinance
or restructure our debt, sell assets (which we may be limited in doing in light of the relatively illiquid nature of our properties),
reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives,
we may not be able to meet these payment obligations, which could materially and adversely affect our liquidity.
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, a tax
protection agreement to which we are a party requires us to maintain a minimum level of indebtedness of $56.0 million throughout
a 10-year tax protection period, which ends in October 2020, in order to allow a sufficient amount of debt to be allocable to MXT
Capital, LLC, a Delaware limited liability company ("MXT Capital"), which is wholly-owned and controlled by Ted Rollins,
our former chief executive officer, and Michael S. Hartnett, our former vice chairman of special projects, and certain members
of their families, to avoid certain adverse tax consequences. If we fail to maintain such minimum indebtedness throughout the 10-year
tax protection period, we will be required to make indemnifying payments to MXT Capital, in an amount equal to the federal, state
and local taxes, if any, imposed on its members as a result of any income or gain recognized by them by reason of such failure.
The amount of such taxes will be 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 may restrict our ability to reduce leverage when
we otherwise might wish to do so and generally reduce our flexibility in managing our capital structure.
In connection with
the consummation of the acquisition of additional membership interests in the Copper Beech portfolio, we also entered into a tax
protection agreement with certain of the selling unitholders participating in the transaction (the “CB Unitholders”),
including one or more entities in which Dr. McWhirter has an ownership interest. Pursuant to the tax protection agreement, unless
we indemnify the applicable CB Unitholders for certain resulting tax liabilities, we have agreed not to sell or otherwise to dispose
of in a taxable exchange during the 7-year tax protection period, any of the seventeen protected properties set forth in the tax
protection agreement. Further, we also agreed to allocate to the CB Unitholders, during the 7-year tax protection period, an aggregate
amount of at least $100 million of debt of the Operating Partnership (which amount decreases ratably as the number of OP Units
held by the CB Unitholders decreases) without any requirement that any CB Unitholder guarantee or directly bear the risk for such
indebtedness and, after the end of the 7-year period, to use commercially reasonable efforts to permit the CB Unitholders to enter
into guarantees of “qualifying” debt or agreements to return a portion of their deficit capital account so as to permit
the CB Unitholders to avoid certain adverse tax consequences.
Our indebtedness and
the limitations imposed on us by our indebtedness could have significant adverse consequences, including the following:
|
· |
we may be unable to borrow additional funds as needed or on favorable terms; |
|
· |
we may be unable to renew, repay or refinance our indebtedness at maturity or the renewal or refinancing terms may be less favorable than the terms of the indebtedness being renewed or refinanced; |
|
|
|
|
· |
we may be forced to dispose of certain of our properties, possibly on disadvantageous terms; |
|
|
|
|
· |
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; |
|
|
|
|
· |
to the extent that we incur unhedged floating rate debt, we will have exposure to interest rate risk; and |
|
|
|
|
· |
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. |
|
|
|
Compliance with
the provisions of our debt agreements, including financial and other covenants, such as the maintenance of specified financial
ratios, could limit our flexibility, and a default under these agreements could result in a requirement that we repay indebtedness,
which could severely affect our liquidity and increase our financing costs, which could materially and adversely affect our business,
financial condition and results of operations.
In addition to
our consolidated indebtedness, we are guarantor on construction and mortgage debt of our ventures with Harrison Street Real
Estate Capital (“HSRE”) and Beaumont Partners SA (“Beaumont”), as described above in
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital
Resources – Off-Balance Sheet Arrangements. We also have a non-recourse carve-out guaranty and a 10% principal
repayment guaranty and were required to deliver a $1.0 million irrevocable standby letter of credit on behalf of Copper Beech
Townhome Communities Twenty Three, LLC (“CBTC 23”) relating to the CBTC 23 loan on the Copper Beech Kalamazoo
Phase I property (in which we no longer have an equity interest). We have received a copy of a notice of default addressed to
CBTC 23 dated June 26, 2015, from the special servicer of the CBTC 23 loan, and although the special servicer has not made a
demand under our guaranty or letter of credit with respect to such loan, we believe that such a demand may be
forthcoming.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
None.
ITEM 6.
EXHIBITS
Exhibit
Number |
|
Description of Document |
|
|
|
10.1 |
|
Registration Rights Agreement, dated as of January 30, 2015, by and among Campus Crest Communities, Inc., and the persons listed on Schedule 2.1 (i) thereto (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on February 3, 2015) |
|
|
|
10.2 |
|
Tax Protection Agreement, dated as of January 30, 2015, by and among Campus Crest Communities, Inc., Campus Crest Communities Operating Partnership, L.P. and the other persons set forth on Schedule 2.1(i) thereto (incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on February 3, 2015) |
|
|
|
10.3* |
|
Separation Agreement, dated November 13, 2014, by and between Campus Crest Communities, Inc. and Donald L. Bobbitt, Jr. |
|
|
|
10.4* |
|
Separation Agreement, dated February 28, 2015, by and between Campus Crest Communities, Inc. and Angel Herrera |
|
|
|
10.5* |
|
First Restated Separation Agreement, dated February 17, 2015, by and between Campus Crest Communities, Inc. and Ted Rollins |
|
|
|
31.1* |
|
Certification of Interim Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2* |
|
Certification of Interim Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1** |
|
Certification of Interim Chief Executive Officer and Interim Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101† |
|
The following materials from Campus Crest Communities, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to the Consolidated Financial Statements. |
* Filed herewith.
** Furnished herewith.
† To be filed
by amendment.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated:
July 24, 2015
|
|
|
|
|
CAMPUS CREST COMMUNITIES, INC. |
|
|
|
|
|
By: |
/s/ John Makuch |
|
|
|
John Makuch |
|
|
|
Interim Chief Financial Officer |
|
Exhibit Index
Exhibit
Number |
|
Description of Document |
|
|
|
10.1 |
|
Registration Rights Agreement, dated as of January 30, 2015, by and among Campus Crest Communities, Inc., and the persons listed on Schedule 2.1 (i) thereto (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on February 3, 2015) |
|
|
|
10.2 |
|
Tax Protection Agreement, dated as of January 30, 2015, by and among Campus Crest Communities, Inc., Campus Crest Communities Operating Partnership, L.P. and the other persons set forth on Schedule 2.1(i) thereto (incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on February 3, 2015) |
|
|
|
10.3* |
|
Separation Agreement, dated November 13, 2014, by and between Campus Crest Communities, Inc. and Donald L. Bobbitt, Jr. |
|
|
|
10.4* |
|
Separation Agreement, dated February 28, 2015, by and between Campus Crest Communities, Inc. and Angel Herrera |
|
|
|
10.5* |
|
First Restated Separation Agreement, dated February 17, 2015, by and between Campus Crest Communities, Inc. and Ted Rollins |
|
|
|
31.1* |
|
Certification of Interim Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2* |
|
Certification of Interim Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1** |
|
Certification of Interim Chief Executive Officer and Interim Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101† |
|
The following materials from Campus Crest Communities, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to the Consolidated Financial Statements. |
* Filed herewith.
** Furnished herewith.
† To be filed
by amendment.
Exhibit 10.3
DONALD L. BOBBITT, JR.
SEPARATION AGREEMENT
Donnie, this Agreement (the “Agreement”) will confirm
the arrangements we have discussed concerning your separation from Campus Crest Communities, Inc. (the “Company” or
“we” or “us”) as a result of the termination of your employment effective November 4, 2014. It constitutes
our entire understanding regarding the terms of your separation.
| 1. | Separation of Employment. Your last day of employment with the Company will be November 4,
2014 (your “Separation Date”). As of your Separation Date, you will be relieved of all further duties and responsibilities
and are no longer authorized to transact business or incur any expenses, obligations, or liabilities on behalf of the Company.
However, for twelve months following your Separation Date, you agree to be available to respond to occasional inquiries or reasonable
requests for assistance from us related to matters arising during your employment with the Company. |
| 2. | Post-Separation Benefits. In exchange for your executing this Agreement and abiding by its terms, the Company will provide
you with the following benefits: |
| · | The sum of $640,000.00 (two times your current annual base salary of $320,000.00) to be paid in equal
installments on the Company’s regular paydays for the payment of base salary to executives, less payroll deductions, for
a period of 24 months commencing no later than 60 days following your Separation Date, with the exact commencement of payments
to be determined in the sole discretion of the Company; except that the first payment shall include any payments that would already
have been paid had payments commenced on November 5, 2014; |
| · | The sum of $717,478.00 (two times the bonus provided to you in 2014 for your work in 2013), to be paid in equal installments
on the Company’s regular paydays for the payment of base salary to executives, less payroll deductions, for a period of 24
months commencing no later than 60 days following your Separation Date, with the exact commencement of payments to be determined
in the sole discretion of the Company; except that the first payment shall include any payments that would already have been paid
had payments commenced on November 5, 2014; |
| · | The Company will take all actions necessary so that the vesting of your 82,681 shares of restricted common stock currently
outstanding pursuant to restricted stock awards will be accelerated to become fully vested on the Separation Date. |
; and
| · | If you elect to extend your health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”),
the Company will pay you in a lump sum the amount of eighteen (18) months of COBRA payments for your current level of coverage,
net of any withholding or income tax obligations |
The Company shall have the right to offset against
any sums payable to you under this Agreement that are exempt from section 409A of the Internal Revenue Code of 1986, as amended,
any amounts you owe the Company as a result of expense account indebtedness, failure to return Company property, or other advances
or debts due.
You acknowledge that the payments
and benefits described above and all other benefits and consideration contained herein are given to you in exchange for your executing
this Agreement and abiding by its terms. You further acknowledge that some or all of the payments and benefits described above
are not required by your Employment Agreement or the Company’s policies and procedures and constitute value to which you
are not already entitled.
Regardless of whether you sign this
Agreement, you will receive your regular base salary through your Separation Date and payment for unused vacation accrued through
your Separation Date in accordance with normal Company policies for payment upon termination of employment.
You will not be eligible to accrue
vacation, participate in any retirement or savings plan, or receive any other employment benefits after your Separation Date. No
further amounts shall be due or owed to you from the Company for or in any way relating to or connected with your employment with
us, except as set forth above.
| 3. | Release of Claims. Except for any claims you may have for workers’ compensation benefits, unemployment compensation
benefits, vested pension or retirement benefits, or nonforfeitable health care, disability, or other similar welfare benefits (which
are not released by this Agreement) and in further consideration of the benefits we have agreed to provide you, you do hereby release
and forever discharge the Company and its affiliates, subsidiaries, parent companies, predecessors, successors, and assigns, and
all of their present and former officers, directors, benefit plans and programs, agents, representatives, shareholders, attorneys,
trustees, and employees (hereinafter collectively referred to as the “Releasees”) from any and all claims, actions,
causes of action, suits, entitlements, liabilities, agreements, damages, losses, or expenses (including attorney’s fees and
costs actually incurred) of any nature whatsoever, whether known or unknown (hereinafter “Claim” or “Claims”),
that you have, may have had, or may later claim to have had against any of them for personal injuries, losses or damage to personal
property, breach of contract (express or implied), breach of any covenant of good faith (express or implied), or any other losses
or expenses of any kind (whether arising in tort or contract or by statute) resulting from anything that has occurred prior to
the date you execute this Agreement. This release includes, but is not limited to, any Claims for back pay, liquidated damages,
compensatory damages, or any other losses or other damages to you or your property resulting from any claimed violation of local,
state, or federal law, including, for example (but not limited to), claims arising under Title VII of the Civil Rights Act of 1964,
42 U.S.C. § 2000e et seq. (prohibiting discrimination on account of race, color, religion, sex, or national
origin); 42 U.S.C. § 1981; the Age Discrimination in Employment Act (the “ADEA”), 29 U.S.C. § 621 et
seq. (prohibiting discrimination on account of age); the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101
et seq. (prohibiting discrimination on account of disabilities); the Uniformed Services Employment and Reemployment
Rights Act of 1994, 38 U.S.C. § 4301 et seq.; the Employee Retirement Income Security Act of 1974, 29 U.S.C.
§ 1001 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et
seq.; Title II of the Genetic Information Nondiscrimination Act of 2008, 42 U.S.C. § 2000ff et seq.;
the North Carolina Equal Employment Practices Act, N.C. Gen. Stat. § 143-422.1 et seq.; the North Carolina
Persons With Disabilities Protection Act, N.C. Gen. Stat. § 168A-1 et seq.; the Occupational Safety and Health
Act of North Carolina, N.C. Gen. Stat. § 95-151; the North Carolina Wage and Hour Act, N.C. Gen. Stat. § 95-25.1 et
seq.; any other Claims under federal, state, or local statutory or common law; or any claim under any Employment Agreement
between you and the Company. The foregoing release of Claims expressly includes a waiver of any right to recovery for the Claims
released herein in any and all private causes of action and/or charges and/or in any and all complaints filed with, or by, any
governmental agency and/or other person or tribunal. This Agreement does not, however, waive rights or claims that may arise after
the date you sign it below. |
You expressly acknowledge that this Agreement is intended
to include in its effect, without limitation, all Claims which you do not know or suspect to exist in your favor at the time you
sign this Agreement, and that this Agreement contemplates the extinguishment of any such Claim or Claims. Thus, in order to effectuate
a full and complete release and discharge of the Released Parties, you expressly waive and relinquish all rights and benefits which
you may have under any state or federal statute or common law principle that would otherwise limit the effect of this Agreement
to Claims known or suspected prior to the date you sign this Agreement, and do so understanding and acknowledging the significance
and consequences of such specific waiver.
| 4. | Affirmations. You affirm that you have not filed, caused to be filed, or are not presently a party to any claim, complaint,
or action against the Company in any forum or form. You furthermore affirm that you have no known workplace injuries or occupational
diseases and have been provided and/or have not been denied any leave requested under the Family and Medical Leave Act. You further
affirm that you are not aware of any wrongful, tortious, or criminal action committed by the Company or its agents. If it is proven
at any time hereafter that any of the above affirmations was false when made, you agree that you shall be found in breach of the
terms of this Agreement. |
| 5. | Covenant Not to Sue. You agree that, except to the extent such right may not be waived by law,
you will not commence any legal action or lawsuit or otherwise assert any legal claim seeking relief for any Claim released or
waived under the Release of Claims provision above. This “covenant not to sue” does not, however, prevent or prohibit
you from seeking a judicial determination of the validity of your Release of Claims under the Age Discrimination in Employment
Act (“ADEA”). In addition, this “covenant not to sue” does not prevent or prohibit you from filing any
administrative complaint or charge against the Releasees (or any of them) with any federal, state, or local agency, including,
for instance, the U.S. Equal Employment Opportunity Commission or the U.S. Department of Labor, but you understand that by signing
this Agreement, you will have no right to recover monetary damages or obtain individual relief of any kind in such proceeding with
respect to Claims released or waived by this Agreement. |
| 6. | Non-Admission. This Agreement shall not in any way be construed as an admission by the Company
that it has acted wrongfully with respect to you or any other person, or that you have any rights whatsoever against the Company. |
| 7. | Return of Property. The Company is giving you one cell phone and one personal computer owned
by the Company that are currently in your possession. You represent that you have returned or agree that you will return to the
Company on or before the Effective Date of this Agreement any and all Company property in your possession or control, including,
but not limited to all keys, credit cards, computers, cellular telephones, and other personal items or equipment provided to you
by the Company for use during your employment, together with all written or recorded materials, documents, computer discs, plans,
records, notes, files, drawings, or papers, and any copies thereof, relating to the affairs of the Company, including all notes
or records relating to clients of the Company. Any severance benefits payable under this Agreement will not be paid until after
you have returned all Company property in your possession. |
| 8. | Confidentiality. You agree that you will keep the terms, amount, and fact of this Agreement
completely confidential, and that, except as required by law, as necessary for the enforcement of this Agreement, or as authorized
in writing by the Company, you will not hereafter disclose any information concerning this Agreement to anyone other than your
immediate family and professional representatives who will be informed by you of, and must agree to be bound by, this confidentiality
clause before you disclose any information about this Agreement to them. |
| 9. | The parties agree that the Confidentiality and Noncompetition Agreement that you entered into effective October 19, 2010 remains
in effect and is incorporated herein by reference with the following modifications: |
| · | Section 1(d) is deleted. |
| · | The following language is added to Section 1: |
(d) “Competitive Business” shall mean
the development, construction, acquisition, sale, marketing or management of facilities whose primary function and purpose is student
housing and/or the provision of third party student housing services to providers of student housing.
and
(j) “Services” shall mean (a) providing
managerial, operational or executive-level oversight, (b) providing strategic guidance, (c) providing any additional services of
the type that Executive performed for Company. You acknowledge and agree that these are the services that you performed for the
Company.
| · | Section 4 is amended to read as follows: |
You covenant and agree that during the Restricted Period,
in any State of the United States of America in which the Company conducts business, has purchased or is under contract to purchase
real estate to conduct business, or has identified specific sites as potential future development opportunities, you shall not,
directly or indirectly whether individually or as a principal, partner, officer, director, consultant contractor, employee, stockholder
or manager of any person, partnership, corporation limited liability company or any other entity provide Services for a Competitive
Business.
| · | The following language is added as the last sentence of Section 5: |
This provision (ii) applies to those persons, concerns,
or entities that were actual or potential customers or suppliers of the Company during the time period of Executive’s employment
with the Company and with which Executive or those he supervised had contact on behalf of the Company.
| · | For the avoidance of doubt, you and the Company agree that the Confidentiality and Noncompetition Agreement is intended to
be applicable only in the United States. |
Except as otherwise provided in this Agreement, the
Employment Agreement that you and the Company entered into effective October 19, 2010 is hereby superseded and shall be null and
void, effective immediately.
| 10. | Non-Disparagement. You agree not to make any oral or written statement or take any other action that disparages or criticizes
the Company or its management or practices, that damages the Company’s good reputation, or that impairs its normal operations.
You understand that this nondisparagement provision does not apply on occasions when you are subpoenaed or ordered by a court or
other governmental authority to testify or give evidence and must, of course, respond truthfully, to conduct otherwise protected
by the Sarbanes-Oxley Act, or to conduct or testimony in the context of enforcing the terms of this Agreement or other rights,
powers, privileges, or claims not released by this Agreement. You also understand that the foregoing nondisparagement provision
does not apply on occasions when you provide truthful information in good faith to any federal, state, or local governmental body,
agency, or official investigating an alleged violation of any antidiscrimination or other employment-related law or otherwise gathering
information or evidence pursuant to any official investigation, hearing, trial, or proceeding. Nothing in this nondisparagement
provision is intended in any way to intimidate, coerce, deter, persuade, or compensate you with respect to providing, withholding,
or restricting any communication whatsoever to the extent prohibited under 18 U.S.C. §§ 201, 1503, or 1512 or under any
similar or related provision of state or federal law. |
| 11. | Expenses. You agree that you have been reimbursed by the Company for all reasonable and necessary out-of-pocket travel
and other business expenses incurred by you in accordance with the Company’s policies. |
| 12. | Consequences of Breach. You agree that you will indemnify and hold the Releasees harmless from
any loss, cost, damage, or expense (including attorneys’ fees) incurred by them arising out of your breach of any portion
of this Agreement. You also understand that your entitlement to and retention of the benefits we have agreed to provide you herein
are expressly conditioned upon your fulfillment of your promises herein, and you agree, to the extent permitted or required by
law, immediately to return or repay the amounts you have received from us pursuant to this Agreement in excess of $100.00 upon
your breach of any provision of this Agreement. For the purposes of this paragraph, a subsequent legal challenge to the validity
of your release of claims under the ADEA in this Agreement will not be considered a breach of this Agreement. However, the severance
benefits paid to you under this Agreement may serve as restitution, recoupment, and/or setoff in the event you prevail on the merits
of such claim. |
| 13. | Choice of Law and Entire Agreement. This Agreement shall be governed by the laws of the State of North Carolina, without
regard to conflict of laws principles. This Agreement represents the entire understanding between you and the Company and supersedes
any prior agreement or plan regarding its contents. Any alteration or modification of this Agreement shall not be valid unless
in writing and signed by all parties. |
| 14. | Arbitration. Any and all disputes relating to your employment with the Company, the termination
of that employment, and the parties’ compliance with or alleged breach of this Agreement are subject to arbitration by both
you and the Company in accordance with the arbitration provisions set forth in Paragraphs 12 and 17 of the Employment Agreement
between you and the Company entered into on January 1, 2013, which paragraphs are hereby incorporated by reference. |
| 15. | Severability. The provisions of this Agreement are severable, and if any term of this Agreement
is held to be illegal, invalid, or unenforceable by a court of competent jurisdiction, the remaining terms shall remain in full
force and effect. |
| 16. | Consideration Period. Because the arrangements discussed in this Agreement affect important rights and obligations,
we advise you to consult with an attorney before you agree to the terms set forth herein. You have twenty-one (21) days from the
date you receive this Agreement within which to consider it, and you may take as much of that time as you wish before signing.
If you decide to accept the benefits offered herein, you must sign this Agreement on or before the expiration of the twenty-one
(21)-day period and return it promptly to Brandon Parise at the Company at brandon.parise@campuscrest.com, whose address is Campus
Crest Real Estate Management, 2100 Rexford Road, #414, Charlotte, NC 28211. If you do not wish to accept the terms of this Agreement,
you do not have to do anything. |
| 17. | Revocation Rights. For a period of up to and including seven (7) days after the date you sign this Agreement, you may
revoke it entirely. No rights or obligations contained in this Agreement shall become enforceable before the end of the seven-day
revocation period. If you decide to revoke the Agreement, you must deliver to Mr. Parise at the contact address described in Paragraph
16 above a signed notice of revocation on or before the last day of this seven-day period. Upon delivery of a notice of revocation
to the Company, this Agreement shall be canceled and void, and neither you nor the Company shall have any rights or obligations
arising under it. |
| 18. | Effective Date. This Agreement shall become effective (the “Effective Date”) eight (8) days after the date
you execute it below and have returned all Company property in your possession, unless it is earlier revoked by you pursuant to
the provisions set forth in the “Revocation Rights” section of this Agreement. |
| 19. | Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its respective
successors and assigns, and upon you and any of your heirs, personal representatives and assigns, except that my duties hereunder
may not be delegated. |
| 20. | Interpretation. The language used in this Amended Agreement shall not be construed in favor of or against either of
the Parties, but shall be construed as if both of the Parties prepared this Amended Agreement. The language used in this Amended
Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction
shall be applied against any such Party. |
| 21. | Section 409A. This Agreement is intended comply with the requirements of Code Section 409A of the Internal Revenue Code
of 1986, as amended, and the Department of Treasury guidance thereunder (“Section 409A”). This Agreement shall be interpreted
and administered to maximize the exemptions from Section 409A for the compensation payable pursuant to this Agreement and, to the
extent the Agreement provides for compensation that is subject to Section 409A, to comply with Section 409A and to avoid the imposition
of tax, interest and/or penalties upon you under Section 409A. The Company does not, however, assume any economic burdens associated
with Section 409A. In particular, the Company will not be liable to you for any tax, interest, or penalties you may owe as a result
of this Agreement. Each of your rights to installment payments under the first and second bullets of Section 2 shall be treated
as a right to a series of separate payments for purposes of Section 409A. Each such payment that is made within 2-½ months
following the end of the year that contains the Effective Date is intended to be exempt from Section 409A as a short-term deferral
within the meaning of the final regulations under Section 409A. Each such payment that is made later than 2-½ months following
the end of the year that contains the Effective Date is intended to be exempt from Section 409A under the two-times exception of
Treasury Reg. § 1.409A-1(b)(9)(iii) (the “Two-Times Exception”), up to the limitation on the availability of the
Two-Times Exception specified in the regulation. Each payment that is made after the Two-Times Exception ceases to be available
shall be subject to the six-month delay, as necessary, as specified below. To the extent necessary to comply with Section 409A,
in no event shall you, directly or indirectly, designate the taxable year of any payment under this Agreement. In particular, with
respect to any payment that is conditioned upon your executing and not revoking the release of claims as specified herein, if the
designated payment period for such payment begins in one taxable year and ends in the next taxable year, the payment will be made
in the later taxable year. To the extent necessary to comply with Section 409A, references in this Agreement to “termination
of employment” or “terminates employment” (and similar references) shall have the same meaning as “separation
from service” within the meaning of Section 409A (a “Separation from Service”), and no payment subject to Section
409A that is payable upon a termination of employment shall be paid unless and until (and not later than applicable in compliance
with Section 409A) you incur a Separation from Service. In addition, if you are a “specified employee” within the meaning
of Section 409A(a)(2)(B)(i) at the time of your Separation from Service, any payment subject to Section 409A that would otherwise
have been payable on account of, and within the first six months following, your Separation from Service will become payable on
the first business day after six months following the Separation Date or, if earlier, the date of your death. |
| 22. | Acknowledgments. If the terms of this Agreement correctly set forth our agreement, please so indicate by signing in
the appropriate space below. Your signature will be an acknowledgment that no other promise or agreement of any kind has been made
to you by the Company to cause you to execute this Agreement, that you had twenty-one (21) days to review this Agreement and to
consult with an attorney or other person of your choosing about its terms before signing it, that the only consideration for your
signature is as indicated above, that you fully understand and accept this Agreement, that you are not coerced into signing it,
and that you signed it knowingly and voluntarily because it is satisfactory to you. |
CAMPUS CREST COMMUNITIES, INC.
By: |
/s/ Richard Kahlbaugh |
|
|
Richard Kahlbaugh |
|
|
Interim Chief Executive Officer |
|
I have carefully read the above Confidential Separation Agreement
and General Release, understand the meaning and intent thereof, and voluntarily agree to its terms this 13th day of
November, 2014.
/s/ Donald L. Bobbitt, Jr. |
|
Donald L. Bobbitt, Jr. |
|
Exhibit 10.4
ANGEL HERRERA
SEPARATION AGREEMENT
This Agreement (the “Agreement”) will confirm the
arrangements we have discussed concerning your separation from Campus Crest Communities, Inc. (the “Company” or “we”
or “us”) as a result of the voluntary termination of your employment effective February 28, 2015. It constitutes our
entire understanding regarding the terms of your separation.
| 1. | Separation of Employment. Your last day of employment with the Company will be February 28,
2015 (your “Separation Date”). As of your Separation Date, you are voluntarily resigning, are relieved of all further
duties and responsibilities, and are no longer authorized to transact business or incur any expenses, obligations, or liabilities
on behalf of the Company. To formalize your resignation, you agree to execute the letter of resignation attached hereto as Exhibit
A. However, for ninety (90) days following your Separation Date, you agree to be available to respond to occasional inquiries or
reasonable requests for assistance from us, which we do not anticipate would require more than an hour per week on average, related
to matters arising during your employment with the Company. |
| 2. | Post-Separation Benefits. In exchange for your executing this Agreement and abiding by its terms, the Company will provide
you with the following benefits: |
| · | The sum of $122,556.12, less payroll deductions, to be paid within ten days after the effective
date of this Agreement; |
| · | The 41,137 shares of restricted Company stock that were granted to you in 2014 will vest fully on
your Separation Date; |
| · | The Company will cooperate with its benefits carriers to ensure that you receive all of the benefits
to which you are entitled; and |
| · | You will be provided with information regarding your right to extend your Company-provided group health insurance coverage
under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). The monthly COBRA premium if you choose to continue
your current family medical, dental, and vision coverage will be $1676.02. |
The Company agrees that it will
state in pertinent part as follows on the Form 8K it is required by law to file following Mr. Herrera’s official resignation:
“On February 20, 2015, Angel Herrera tendered his resignation as Chief Operating Officer of the Company, effective on
February 28, 2015. Mr. Herrera’s resignation was not the result of any dispute or disagreement with the Company regarding
the Company’s operations, policies or practices, but rather was a result of Mr. Herrera’s desire to pursue other opportunities
closer to his family’s home in the southwest.”
You agree that you will be responsible for any and
all costs associated with the temporary apartment you have been renting in the Charlotte, North Carolina area, including costs
for rent, early termination of the lease, breakage, and security deposit as well as costs associated with your vacating that apartment
and moving your personal effects back to Texas.
The Company shall have the right to offset against
any sums payable to you under this Agreement that are exempt from section 409A of the Internal Revenue Code of 1986, as amended,
any amounts you owe the Company as a result of expense account indebtedness, failure to return Company property, or other advances
or debts due.
You acknowledge that the payments
and benefits described above and all other benefits and consideration contained herein are given to you in exchange for your executing
this Agreement and abiding by its terms. You further acknowledge that the payments and benefits described above are not required
by your Employment Agreement or the Company’s policies and procedures and constitute value to which you are not already entitled.
You will not be eligible to accrue
vacation, participate in any retirement or savings plan, or receive any other employment benefits after your Separation Date. No
further amounts shall be due or owed to you from the Company for or in any way relating to or connected with your employment with
us, except as set forth above.
| 3. | Release of Claims. Except for any claims you may have for workers’ compensation benefits, unemployment compensation
benefits, vested pension or retirement benefits, or nonforfeitable health care, disability, or other similar welfare benefits (which
are not released by this Agreement) and in further consideration of the benefits we have agreed to provide you, you do hereby release
and forever discharge the Company and its affiliates, subsidiaries, parent companies, predecessors, successors, and assigns, and
all of their present and former officers, directors, benefit plans and programs, agents, representatives, shareholders, attorneys,
trustees, and employees (hereinafter collectively referred to as the “Releasees”) from any and all claims, actions,
causes of action, suits, entitlements, liabilities, agreements, damages, losses, or expenses (including attorney’s fees and
costs actually incurred) of any nature whatsoever, whether known or unknown (hereinafter “Claim” or “Claims”),
that you have, may have had, or may later claim to have had against any of them for personal injuries, losses or damage to personal
property, breach of contract (express or implied), breach of any covenant of good faith (express or implied), or any other losses
or expenses of any kind (whether arising in tort or contract or by statute) resulting from anything that has occurred prior to
the date you execute this Agreement. This release includes, but is not limited to, any Claims for back pay, liquidated damages,
compensatory damages, or any other losses or other damages to you or your property resulting from any claimed violation of local,
state, or federal law, including, for example (but not limited to), claims arising under Title VII of the Civil Rights Act of 1964,
42 U.S.C. § 2000e et seq. (prohibiting discrimination on account of race, color, religion, sex, or national
origin); 42 U.S.C. § 1981; the Age Discrimination in Employment Act (the “ADEA”), 29 U.S.C. § 621 et
seq. (prohibiting discrimination on account of age); the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101
et seq. (prohibiting discrimination on account of disabilities); the Uniformed Services Employment and Reemployment
Rights Act of 1994, 38 U.S.C. § 4301 et seq.; the Employee Retirement Income Security Act of 1974, 29 U.S.C.
§ 1001 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et
seq.; Title II of the Genetic Information Nondiscrimination Act of 2008, 42 U.S.C. § 2000ff et seq.;
the North Carolina Equal Employment Practices Act, N.C. Gen. Stat. § 143-422.1 et seq.; the North Carolina
Persons With Disabilities Protection Act, N.C. Gen. Stat. § 168A-1 et seq.; the Occupational Safety and Health
Act of North Carolina, N.C. Gen. Stat. § 95-151; the North Carolina Wage and Hour Act, N.C. Gen. Stat. § 95-25.1 et
seq.; the Texas Commission on Human Rights Act, Tex. Lab. Code Ann. § 21.001 et seq.; the Texas Equal
Pay Law, Tex. Gov’t Code Ann. § 659.001; the Texas Hazard Communication Act, Tex. Health & Safety Code Ann. §
502.017(c); any other Claims under federal, state, or local statutory or common law; or any claim under any Employment Agreement
between you and the Company. The foregoing release of Claims expressly includes a waiver of any right to recovery for the Claims
released herein in any and all private causes of action and/or charges and/or in any and all complaints filed with, or by, any
governmental agency and/or other person or tribunal. This Agreement does not, however, waive rights or claims that may arise after
the date you sign it below. |
You expressly acknowledge that this Agreement is intended
to include in its effect, without limitation, all Claims which you do not know or suspect to exist in your favor at the time you
sign this Agreement, and that this Agreement contemplates the extinguishment of any such Claim or Claims. Thus, in order to effectuate
a full and complete release and discharge of the Released Parties, you expressly waive and relinquish all rights and benefits which
you may have under any state or federal statute or common law principle that would otherwise limit the effect of this Agreement
to Claims known or suspected prior to the date you sign this Agreement, and do so understanding and acknowledging the significance
and consequences of such specific waiver.
The Company hereby releases and forever discharges
You from any and all claims, actions, causes of action, suits, entitlements, liabilities, agreements, damages, losses, or expenses
(including attorney’s fees and costs actually incurred) of any nature whatsoever, whether known or unknown (hereinafter “Claim”
or “Claims”), that it has, may have had, or may later claim to have had against You for personal injuries, losses or
damage to personal property, breach of contract (express or implied), breach of any covenant of good faith (express or implied),
or any other losses or expenses of any kind (whether arising in tort or contract or by statute) resulting from anything that has
occurred prior to the date you execute this Agreement, except that any claims based on conduct by you that was fraudulent or criminal
under applicable law is not covered by this release. The Company states that it is not currently aware of any such fraudulent or
criminal conduct by you.
| 4. | Affirmations. You affirm that you have not filed, caused to be filed, or are not presently a party to any claim, complaint,
or action against the Company in any forum or form. You furthermore affirm that you have no known workplace injuries or occupational
diseases and have been provided and/or have not been denied any leave requested under the Family and Medical Leave Act. You further
affirm that you are not aware of any wrongful, tortious, or criminal action committed by the Company or its agents. If it is proven
at any time hereafter that any of the above affirmations was false when made, you agree that you shall be found in breach of the
terms of this Agreement. |
| 5. | Covenant Not to Sue. The Parties agree that, except to the extent such right may not be waived
by law, they will not commence any legal action or lawsuit or otherwise assert any legal claim seeking relief for any Claim released
or waived under the Release of Claims provision above. This “covenant not to sue” does not, however, prevent or prohibit
you from seeking a judicial determination of the validity of your Release of Claims under the Age Discrimination in Employment
Act (“ADEA”). In addition, this “covenant not to sue” does not prevent or prohibit you from filing any
administrative complaint or charge against the Releasees (or any of them) with any federal, state, or local agency, including,
for instance, the U.S. Equal Employment Opportunity Commission or the U.S. Department of Labor, but you understand that by signing
this Agreement, you will have no right to recover monetary damages or obtain individual relief of any kind in such proceeding with
respect to Claims released or waived by this Agreement. Similarly, this covenant not to sue does not prevent or prohibit the Company
from bringing a claim against you based on conduct by you that was fraudulent or criminal under applicable law. |
| 6. | Non-Admission. This Agreement shall not in any way be construed as an admission by the Company
that it has acted wrongfully with respect to you or any other person, or that you have any rights whatsoever against the Company. |
| 7. | Return of Property. You represent that you have returned or agree that you will return to the
Company on or before the Effective Date of this Agreement any and all Company property in your possession or control, including,
but not limited to all keys, credit cards, computers, cellular telephones, and other personal items or equipment provided to you
by the Company for use during your employment, together with all written or recorded materials, documents, computer discs, plans,
records, notes, files, drawings, or papers, and any copies thereof, relating to the affairs of the Company, including all notes
or records relating to clients of the Company. Any severance benefits payable under this Agreement will not be paid until after
you have returned all Company property in your possession. |
| 8. | Confidentiality. You agree that you will keep the terms, amount, and fact of this Agreement
completely confidential, and that, except as required by law, as necessary for the enforcement of this Agreement, or as authorized
in writing by the Company, you will not hereafter disclose any information concerning this Agreement to anyone other than your
immediate family and professional representatives who will be informed by you of, and must agree to be bound by, this confidentiality
clause before you disclose any information about this Agreement to them. |
| 9. | The parties agree that the Confidentiality and Noncompetition Agreement that you entered into effective October 27, 2014 remains
in effect and is incorporated herein by reference with the following modifications: |
| · | Sections 1(d) and 1(j) are deleted. |
| · | The following language is added to Section 1: |
(d) “Competitive Business” shall mean
the development, construction, acquisition, sale, marketing or management of facilities whose primary function and purpose is student
housing and/or the provision of third party student housing services to providers of student housing.
and
(j) “Services” shall mean (a) providing
managerial, operational or executive-level oversight, (b) providing strategic guidance, (c) providing any additional services of
the type that Executive performed for Company. You acknowledge and agree that these are the services that you performed for the
Company.
| · | Section 4 is amended to read as follows: |
You covenant and agree that during the Restricted Period,
in any State of the United States of America in which the Company conducts business, has purchased or is under contract to purchase
real estate to conduct business, or has identified specific sites as potential future development opportunities, you shall not,
directly or indirectly whether individually or as a principal, partner, officer, director, consultant contractor, employee, stockholder
or manager of any person, partnership, corporation limited liability company or any other entity provide Services for a Competitive
Business.
| · | The following language is added as the last sentence of Section 5: |
This provision (ii) applies to those persons, concerns,
or entities that were actual or potential customers or suppliers of the Company during the time period of Executive’s employment
with the Company and with which Executive or those he supervised had contact on behalf of the Company.
Except as otherwise provided in this Agreement, the
Employment Agreement that you and the Company entered into effective October 27, 2014 is hereby superseded and shall be null and
void, effective immediately.
| 10. | Non-Disparagement. You agree not to make any oral or written statement or take any other action that disparages or criticizes
the Company or its management or practices, that damages the Company’s good reputation, or that impairs its normal operations.
You understand that this nondisparagement provision does not apply on occasions when you are subpoenaed or ordered by a court or
other governmental authority to testify or give evidence and must, of course, respond truthfully, to conduct otherwise protected
by the Sarbanes-Oxley Act, or to conduct or testimony in the context of enforcing the terms of this Agreement or other rights,
powers, privileges, or claims not released by this Agreement. You also understand that the foregoing nondisparagement provision
does not apply on occasions when you provide truthful information in good faith to any federal, state, or local governmental body,
agency, or official investigating an alleged violation of any antidiscrimination or other employment-related law or otherwise gathering
information or evidence pursuant to any official investigation, hearing, trial, or proceeding. Nothing in this nondisparagement
provision is intended in any way to intimidate, coerce, deter, persuade, or compensate you with respect to providing, withholding,
or restricting any communication whatsoever to the extent prohibited under 18 U.S.C. §§ 201, 1503, or 1512 or under any
similar or related provision of state or federal law. |
| 11. | Expenses. You agree that you have been reimbursed by the Company for all reasonable and necessary out-of-pocket travel
and other business expenses incurred by you in accordance with the Company’s policies. |
| 12. | Consequences of Breach. You agree that you will indemnify and hold the Releasees harmless from
any loss, cost, damage, or expense (including attorneys’ fees) incurred by them arising out of your breach of any portion
of this Agreement. You also understand that your entitlement to and retention of the benefits we have agreed to provide you herein
are expressly conditioned upon your fulfillment of your promises herein, and you agree, to the extent permitted or required by
law, immediately to return or repay the amounts you have received from us pursuant to this Agreement in excess of $100.00 upon
your breach of any provision of this Agreement. For the purposes of this paragraph, a subsequent legal challenge to the validity
of your release of claims under the ADEA in this Agreement will not be considered a breach of this Agreement. However, the severance
benefits paid to you under this Agreement may serve as restitution, recoupment, and/or setoff in the event you prevail on the merits
of such claim. |
| 13. | Choice of Law and Entire Agreement. This Agreement shall be governed by the laws of the State of North Carolina, without
regard to conflict of laws principles. This Agreement represents the entire understanding between you and the Company and supersedes
any prior agreement or plan regarding its contents. Any alteration or modification of this Agreement shall not be valid unless
in writing and signed by all parties. |
| 14. | Arbitration. Any and all disputes relating to your employment with the Company, the termination
of that employment, and the parties’ compliance with or alleged breach of this Agreement are subject to arbitration by both
you and the Company in accordance with the arbitration provisions set forth in Paragraphs 13 and 17 of the Employment Agreement
between you and the Company entered into on October 27, 2014, which paragraphs are hereby incorporated by reference. |
| 15. | Severability. The provisions of this Agreement are severable, and if any term of this Agreement
is held to be illegal, invalid, or unenforceable by a court of competent jurisdiction, the remaining terms shall remain in full
force and effect. |
| 16. | Consideration Period. Because the arrangements discussed in this Agreement affect important rights and obligations,
we advise you to consult with an attorney before you agree to the terms set forth herein. You have twenty-one (21) days from the
date you receive this Agreement within which to consider it, and you may take as much of that time as you wish before signing.
If you decide to accept the benefits offered herein, you must sign this Agreement on or before the expiration of the twenty-one
(21)-day period and return it promptly to Dan Simmons at the Company at simmons1970@att.net, whose address is Campus Crest Real
Estate Management, 2100 Rexford Road, #414, Charlotte, NC 28211. If you do not wish to accept the terms of this Agreement, you
do not have to do anything. |
| 17. | Revocation Rights. For a period of up to and including seven (7) days after the date you sign this Agreement, you may
revoke it entirely. No rights or obligations contained in this Agreement shall become enforceable before the end of the seven-day
revocation period. If you decide to revoke the Agreement, you must deliver to Mr. Simmons at the contact address described in Paragraph
16 above a signed notice of revocation on or before the last day of this seven-day period. Upon delivery of a notice of revocation
to the Company, this Agreement shall be canceled and void, and neither you nor the Company shall have any rights or obligations
arising under it. |
| 18. | Effective Date. This Agreement shall become effective (the “Effective Date”) eight (8) days after the date
you execute it below and have returned all Company property in your possession, unless it is earlier revoked by you pursuant to
the provisions set forth in the “Revocation Rights” section of this Agreement. |
| 19. | Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its respective
successors and assigns, and upon you and any of your heirs, personal representatives and assigns, except that my duties hereunder
may not be delegated. |
| 20. | Interpretation. The language used in this Amended Agreement shall not be construed in favor of or against either of
the Parties, but shall be construed as if both of the Parties prepared this Amended Agreement. The language used in this Amended
Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction
shall be applied against any such Party. |
| 21. | Section 409A and Other Tax Treatment. This Agreement is intended comply with the requirements of Section 409A of the
Internal Revenue Code of 1986, as amended, and the Department of Treasury guidance thereunder (“Section 409A”). This
Agreement shall be interpreted and administered to maximize the exemptions from Section 409A for the compensation payable pursuant
to this Agreement and, to the extent the Agreement provides for compensation that is subject to Section 409A, to comply with Section
409A and to avoid the imposition of tax, interest and/or penalties upon you under Section 409A. The Company does not, however,
assume any economic burdens associated with Section 409A or other tax treatment of the compensation and benefits provided under
this Agreement. In particular, the Company will not be liable to you for any tax, interest, or penalties you may owe as a result
of this Agreement. Each discrete payment described in the first and fourth bullets of Section 2 is a separate payment for purposes
of Section 409A and is intended to be exempt from Section 409A as a short-term deferral within the meaning of the final regulations
under Section 409A. To the extent necessary to comply with Section 409A, references in this Agreement to “termination of
employment” or “terminates employment” (and similar references) shall have the same meaning as “separation
from service” within the meaning of Section 409A (a “Separation from Service”), and no payment subject to Section
409A that is payable upon a termination of employment shall be paid unless and until (and not later than applicable in compliance
with Section 409A) you incur a Separation from Service. In addition, if you are a “specified employee” within the meaning
of Section 409A(a)(2)(B)(i) at the time of your Separation from Service, any payment subject to Section 409A that would otherwise
have been payable on account of, and within the first six months following, your Separation from Service will become payable on
the first business day after six months following the Separation Date or, if earlier, the date of your death. |
| 22. | Acknowledgments. If the terms of this Agreement correctly set forth our agreement, please so indicate by signing in
the appropriate space below. Your signature will be an acknowledgment that no other promise or agreement of any kind has been made
to you by the Company to cause you to execute this Agreement, that you had twenty-one (21) days to review this Agreement and to
consult with an attorney or other person of your choosing about its terms before signing it, that the only consideration for your
signature is as indicated above, that you fully understand and accept this Agreement, that you are not coerced into signing it,
and that you signed it knowingly and voluntarily because it is satisfactory to you. |
CAMPUS CREST
COMMUNITIES, INC.
By: |
/s/ Richard Kahlbaugh |
|
|
Richard Kahlbaugh |
|
|
Interim Chief Executive Officer |
|
I have carefully read the above Confidential Separation Agreement
and General Release, understand the meaning and intent thereof, and voluntarily agree to its terms this 20th day of
February, 2015.
/s/ Angel Herrera |
|
Angel Herrera |
|
EXHIBIT A
6613 Riverhill Drive
Plano, TX 75024
February 20, 2015
Mr. Richard Kahlbaugh
Interim Chief Executive Officer
Campus Crest Group
2100 Rexford Road
Charlotte, NC 28211
Dear Rick:
I have made the decision to voluntarily resign as the Chief
Operating Officer of Campus Crest Group, effective on February 28, 2015. I wish you and the Company only the best.
Sincerely,
Angel Herrera
Exhibit 10.5
TED W. ROLLINS
FIRST RESTATED SEPARATION AGREEMENT
This Agreement (the “Agreement”) clarifies and restates
the Separation Agreement entered into between Campus Crest Communities, Inc. (the “Company” or “we” or
“us”) and Ted W. Rollins (“you”) relating to the termination of your employment effective November 3, 2014
(the “Separation Agreement”). The Separation Agreement is ambiguous as to the timing of the severance payments payable
to you thereunder and has been clarified as set forth in this Agreement. This Agreement constitutes our entire understanding regarding
the terms of your separation and supersedes and replaces the Separation Agreement in its entirety.
| 1. | Separation of Employment. Your last day of employment with the Company will be November 3,
2014 (your “Separation Date”). As of your Separation Date, you will be relieved of all further duties and responsibilities
and are no longer authorized to transact business or incur any expenses, obligations, or liabilities on behalf of the Company.
However, for twelve months following your Separation Date, you agree that you will respond diligently and with your best efforts
as an independent contractor consultant to inquiries or reasonable requests for assistance from us related to matters arising during
your employment with the Company or otherwise relating to the Company’s business, up to a maximum of 40 hours of assistance
per month. The parties intend that you will incur a “separation from service” for purposes of Section 409A of the Internal
Revenue Code of 1986, as amended, and the Department of Treasury guidance thereunder on the Separation Date. |
| 2. | Post-Separation Benefits. In exchange for your executing this Agreement and abiding by its terms, the Company will provide
you with the following benefits: |
| a. | Your departure will be recorded as a voluntary resignation on the Company’s personnel records. |
| b. | The Company will pay you the following amounts: |
| i. | severance pay in the amount of One Million Nine Hundred and Eight Thousand Nine Hundred and Fifty
Four Dollars ($1,908,954) payable as follows: |
| A. | Six Hundred and Seventy-Nine Thousand Seventy-Nine Dollars and Fifty Cents ($679,079.50) paid in a
lump sum within four (4) days of the execution of this Agreement, but in no event later than February 27, 2015; |
| B. | Thirty-Six Thousand, Seven Hundred Seventy-Eight and Twenty-Five Cents ($36,778.25) payable, in September
2015; and |
| C. | Seventy-Nine Thousand, Five Hundred Thirty-Nine Dollars and Seventy Five Cents ($79,539.75) payable
in each consecutive month beginning with October 2015 and ending with December 2016. |
| ii. | a COBRA payment in the amount of Twenty-Six Thousand Five Hundred Eighty-Seven and Sixty Two Cents
($26,587.62) paid in a lump sum within four (4) days of the execution of this Agreement, but in no event later than February 27,
2015; and |
| iii. | a consulting payment in the amount of Two Hundred Forty Thousand Dollars ($240,000) paid in a lump
sum within four (4) days of the execution of this Agreement, but in no event later than February 27, 2015, for the consulting services
described in paragraph 1 above. |
| c. | All amounts payable to you by the Company pursuant to Section 2b, shall be paid in accordance with past practices; provided
that, if at any time during the term of this Agreement you no longer (directly or indirectly) own units in Campus Crest Communities
Operating Partnership, LP, any amounts payable to you from and after such date shall be subject to all applicable payroll or other
applicable withholding taxes. |
| d. | As soon as reasonably practicable, but not later than March 31, 2015, the Company will establish a “rabbi trust”
substantially in the form of the Nonqualified Plan Trust Agreement, attached hereto as Exhibit A (the “Trust Agreement”),
and deposit $1,229,875.50 in such trust, in order to pay certain of your benefits under this Agreement (the “Trust”).
The trustee of the Trust shall be Bank of America, N.A. All benefits payable to you under this Agreement other than those set forth
in Sections 2biA, 2bii and 2biii shall be paid from the Trust, to the extent the Trust assets are sufficient. You shall be responsible
for (i) your legal fees; (ii) subject to a maximum cap of $3,000 (the “Cap”), the Company’s legal fees associated
with establishing the Trust (as subject the Cap, the “Company Legal Costs”); and (iii) any other third-party costs
associated with establishing the Trust, and you shall be responsible for, and to the extent paid directly by the Company or out
of Trust assets, you shall reimburse the Company for, all third party costs of maintaining the Trust (including but not limited
to the annual trustee fees associated with maintaining the Trust) (the “Trust Costs”). |
| e. | The Company will take all actions necessary so that the vesting of your 199,208 shares of restricted common stock currently
outstanding pursuant to restricted stock awards will be accelerated to become fully vested on the Separation Date. |
The Company shall have the right to offset against
any sums payable to you under this Agreement that are exempt from section 409A of the Internal Revenue Code of 1986, as amended,
any amounts you owe the Company as a result of expense account indebtedness, failure to return Company property, or other advances
or debts due as of the date of this Agreement, including the Company Legal Costs. In addition, the Company shall have the right
to offset against any sums payable to you under this Agreement at the time such payments are otherwise payable pursuant to the
terms hereof Trust Costs paid by the Company, whether directly or out of Trust assets, to the extent not otherwise reimbursed to
the Company pursuant to clause d., above.
You acknowledge that the payments
and benefits described above and all other benefits and consideration contained herein are given to you in exchange for your executing
this Agreement and abiding by its terms. You further acknowledge that some or all of the payments described above are not required
by your Employment Agreement or the Company’s policies and procedures and constitute value to which you are not already entitled.
Regardless of whether you sign this
Agreement, you will receive your regular base salary through your Separation Date and payment for unused vacation accrued through
your Separation Date in accordance with normal Company policies for payment upon termination of employment.
You will not be eligible to accrue
vacation, participate in any retirement or savings plan, or receive any other employment benefits after your Separation Date. No
further amounts shall be due or owed to you from the Company for or in any way relating to or connected with your employment with
us, except as set forth above.
| 3. | Release of Claims. Except for any claims you may have for workers’ compensation benefits, unemployment compensation
benefits, vested pension or retirement benefits, or nonforfeitable health care, disability, or other similar welfare benefits (which
are not released by this Agreement) and in further consideration of the benefits we have agreed to provide you, you do hereby release
and forever discharge the Company and its affiliates, subsidiaries, parent companies, predecessors, successors, and assigns, and
all of their present and former officers, directors, benefit plans and programs, agents, representatives, shareholders, attorneys,
trustees, and employees (hereinafter collectively referred to as the “Releasees”) from any and all claims, actions,
causes of action, suits, entitlements, liabilities, agreements, damages, losses, or expenses (including attorney’s fees and
costs actually incurred) of any nature whatsoever, whether known or unknown (hereinafter “Claim” or “Claims”),
that you have, may have had, or may later claim to have had against any of them for personal injuries, losses or damage to personal
property, breach of contract (express or implied), breach of any covenant of good faith (express or implied), or any other losses
or expenses of any kind (whether arising in tort or contract or by statute) resulting from anything that has occurred prior to
the date you execute this Agreement. This release includes, but is not limited to, any Claims for back pay, liquidated damages,
compensatory damages, or any other losses or other damages to you or your property resulting from any claimed violation of local,
state, or federal law, including, for example (but not limited to), claims arising under Title VII of the Civil Rights Act of 1964,
42 U.S.C. § 2000e et seq. (prohibiting discrimination on account of race, color, religion, sex, or national
origin); 42 U.S.C. § 1981; the Age Discrimination in Employment Act (the “ADEA”), 29 U.S.C. § 621 et
seq. (prohibiting discrimination on account of age); the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101
et seq. (prohibiting discrimination on account of disabilities); the Uniformed Services Employment and Reemployment
Rights Act of 1994, 38 U.S.C. § 4301 et seq.; the Employee Retirement Income Security Act of 1974, 29 U.S.C.
§ 1001 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et
seq.; Title II of the Genetic Information Nondiscrimination Act of 2008, 42 U.S.C. § 2000ff et seq.;
the North Carolina Equal Employment Practices Act, N.C. Gen. Stat. § 143-422.1 et seq.; the North Carolina
Persons With Disabilities Protection Act, N.C. Gen. Stat. § 168A-1 et seq.; the Occupational Safety and Health
Act of North Carolina, N.C. Gen. Stat. § 95-151; the North Carolina Wage and Hour Act, N.C. Gen. Stat. § 95-25.1 et
seq.; any other Claims under federal, state, or local statutory or common law; or any claim under any Employment Agreement
between you and the Company. The foregoing release of Claims expressly includes a waiver of any right to recovery for the Claims
released herein in any and all private causes of action and/or charges and/or in any and all complaints filed with, or by, any
governmental agency and/or other person or tribunal. This Agreement does not, however, waive rights or claims that may arise after
the date you sign it below. |
You expressly acknowledge that this Agreement is intended
to include in its effect, without limitation, all Claims which you do not know or suspect to exist in your favor at the time you
sign this Agreement, and that this Agreement contemplates the extinguishment of any such Claim or Claims. Thus, in order to effectuate
a full and complete release and discharge of the Released Parties, you expressly waive and relinquish all rights and benefits which
you may have under any state or federal statute or common law principle that would otherwise limit the effect of this Agreement
to Claims known or suspected prior to the date you sign this Agreement, and do so understanding and acknowledging the significance
and consequences of such specific waiver.
| 4. | Affirmations. You affirm that you have not filed, caused to be filed, or are not presently a party to any claim, complaint,
or action against the Company in any forum or form. You furthermore affirm that you have no known workplace injuries or occupational
diseases and have been provided and/or have not been denied any leave requested under the Family and Medical Leave Act. You further
affirm that you are not aware of any wrongful, tortious, or criminal action committed by the Company or its agents. If it is proven
at any time hereafter that any of the above affirmations was knowingly false when made, you agree that you shall be found in breach
of the terms of this Agreement. |
| 5. | Covenant Not to Sue. You agree that, except to the extent such right may not be waived by law,
you will not commence any legal action or lawsuit or otherwise assert any legal claim seeking relief for any Claim released or
waived under the Release of Claims provision above. This “covenant not to sue” does not, however, prevent or prohibit
you from seeking a judicial determination of the validity of your Release of Claims under the Age Discrimination in Employment
Act (“ADEA”). In addition, this “covenant not to sue” does not prevent or prohibit you from filing any
administrative complaint or charge against the Releasees (or any of them) with any federal, state, or local agency, including,
for instance, the U.S. Equal Employment Opportunity Commission or the U.S. Department of Labor, but you understand that by signing
this Agreement, you will have no right to recover monetary damages or obtain individual relief of any kind in such proceeding with
respect to Claims released or waived by this Agreement. |
| 6. | Non-Admission. This Agreement shall not in any way be construed as an admission by the Company
that it has acted wrongfully with respect to you or any other person, or that you have any rights whatsoever against the Company. |
| 7. | Return of Property. You represent that you have returned or agree that you will return to the
Company on or before the Effective Date of this Agreement any and all Company property in your possession or control, including,
but not limited to all keys, credit cards, computers, cellular telephones, and other personal items or equipment provided to you
by the Company for use during your employment, together with all written or recorded materials, documents, computer discs, plans,
records, notes, files, drawings, or papers, and any copies thereof, relating to the affairs of the Company, including all notes
or records relating to clients of the Company; provided, however, that you may retain and shall not be required to return the following
properties: 2002 Ford Taurus, one cellular telephone and one personal computer. Any severance benefits payable under this Agreement
will not be paid until after you have returned all Company property in your possession other than such excepted items. |
| 8. | Confidentiality. You agree that you will keep the terms, amount, and fact of this Agreement
completely confidential, and that, except as required by law, as necessary for the enforcement of this Agreement, or as authorized
in writing by the Company, you will not hereafter disclose any information concerning this Agreement to anyone other than your
immediate family and professional representatives who will be informed by you of, and must agree to be bound by, this confidentiality
clause before you disclose any information about this Agreement to them. |
| 9. | The parties agree that the Confidentiality and Noncompetition Agreement that you entered into effective October 19, 2010 remains
in effect and is incorporated herein by reference with the following modifications: |
| · | Section 1(d) is deleted. |
| · | The following language is added to Section 1: |
(d) “Competitive Business” shall mean
the development, construction, acquisition, sale, marketing or management of facilities whose primary function and purpose is student
housing and/or the provision of third party student housing services to providers of student housing.
and
(j) “Services” shall mean (a) providing
managerial, operational or executive-level oversight, (b) providing strategic guidance, (c) providing any additional services of
the type that Executive performed for Company. You acknowledge and agree that these are the services that you performed for the
Company.
| · | Section 4 is amended to read as follows: |
You covenant and agree that during the Restricted Period,
in any State of the United States of America in which the Company conducts business, has purchased or is under contract to purchase
real estate to conduct business, or has identified specific sites as potential future development opportunities, you shall not,
directly or indirectly whether individually or as a principal, partner, officer, director, consultant contractor, employee, stockholder
or manager of any person, partnership, corporation limited liability company or any other entity provide Services for a Competitive
Business.
| · | The following language is added as the last sentence of Section 5: |
This provision (ii) applies to those persons, concerns,
or entities that were actual or potential customers or suppliers of the Company during the time period of Executive’s employment
with the Company and with which Executive or those he supervised had contact on behalf of the Company.
| · | For the avoidance of doubt, you and the Company agree that the Confidentiality and Noncompetition Agreement is intended to
be applicable only in the United States. |
Except as otherwise provided in this Agreement, the
Employment Agreement that you and the Company entered into effective August 5, 2013, is hereby superseded and shall be null and
void, effective immediately.
| 10. | Non-Disparagement. You agree not to make any oral or written statement or take any other action that disparages or criticizes
the Company or its management or practices, that damages the Company’s good reputation, or that impairs its normal operations.
You understand that this nondisparagement provision does not apply on occasions when you are subpoenaed or ordered by a court or
other governmental authority to testify or give evidence and must, of course, respond truthfully, to conduct otherwise protected
by the Sarbanes-Oxley Act, or to conduct or testimony in the context of enforcing the terms of this Agreement or other rights,
powers, privileges, or claims not released by this Agreement. You also understand that the foregoing nondisparagement provision
does not apply on occasions when you provide truthful information in good faith to any federal, state, or local governmental body,
agency, or official investigating an alleged violation of any antidiscrimination or other employment-related law or otherwise gathering
information or evidence pursuant to any official investigation, hearing, trial, or proceeding. Nothing in this nondisparagement
provision is intended in any way to intimidate, coerce, deter, persuade, or compensate you with respect to providing, withholding,
or restricting any communication whatsoever to the extent prohibited under 18 U.S.C. §§ 201, 1503, or 1512 or under any
similar or related provision of state or federal law. |
| 11. | Expenses. You agree that you have been reimbursed by the Company for all reasonable and necessary out-of-pocket travel
and other business expenses incurred by you in accordance with the Company’s policies. |
| 12. | Consequences of Breach. You agree that you will indemnify and hold the Releasees harmless from
any loss, cost, damage, or expense (including attorneys’ fees) incurred by them arising out of your breach of any portion
of this Agreement. You also understand that your entitlement to and retention of the benefits we have agreed to provide you herein
are expressly conditioned upon your fulfillment of your promises herein, and you agree, to the extent permitted or required by
law, immediately to return or repay the amounts you have received from us pursuant to this Agreement in excess of $100.00 upon
your breach of any provision of this Agreement. For the purposes of this paragraph, a subsequent legal challenge to the validity
of your release of claims under the ADEA in this Agreement will not be considered a breach of this Agreement. However, the severance
benefits paid to you under this Agreement may serve as restitution, recoupment, and/or setoff in the event you prevail on the merits
of such claim. |
| 13. | Choice of Law and Entire Agreement. This Agreement shall be governed by the laws of the State of North Carolina, without
regard to conflict of laws principles. This Agreement represents the entire understanding between you and the Company and supersedes
any prior agreement or plan regarding its contents. Any alteration or modification of this Agreement shall not be valid unless
in writing and signed by all parties. |
| 14. | Arbitration. Any and all disputes relating to your employment with the Company, the termination
of that employment, and the parties’ compliance with or alleged breach of this Agreement are subject to arbitration by both
you and the Company in accordance with the arbitration provisions set forth in Paragraphs 12 (Dispute Resolution) and 17 (Fees
and Costs) of the Employment Agreement between you and the Company entered into August 5, 2013, which paragraphs are hereby incorporated
by reference. |
| 15. | Severability. The provisions of this Agreement are severable, and if any term of this Agreement
is held to be illegal, invalid, or unenforceable by a court of competent jurisdiction, the remaining terms shall remain in full
force and effect. |
| 16. | Consideration Period. Because the arrangements discussed in this Agreement affect important rights and obligations,
we advise you to consult with an attorney before you agree to the terms set forth herein. You have twenty-one (21) days from the
date you receive this Agreement within which to consider it, and you may take as much of that time as you wish before signing.
If you decide to accept the benefits offered herein, you must sign this Agreement on or before the expiration of the twenty-one
(21)-day period and return it promptly to Brandon Parise at the Company at brandon.parise@campuscrest.com, whose address is Campus
Crest Real Estate Management, 2100 Rexford Road, #414, Charlotte, NC 28211. If you do not wish to accept the terms of this Agreement,
you do not have to do anything. |
| 17. | Revocation Rights. For a period of up to and including seven (7) days after the date you sign this Agreement, you may
revoke it entirely. No rights or obligations contained in this Agreement shall become enforceable before the end of the seven-day
revocation period. If you decide to revoke the Agreement, you must deliver to Mr. Parise at the contact address described in Paragraph
17 above a signed notice of revocation on or before the last day of this seven-day period. Upon delivery of a notice of revocation
to the Company, this Agreement shall be canceled and void, and neither you nor the Company shall have any rights or obligations
arising under it. |
| 18. | Effective Date. This Agreement shall become effective (the “Effective Date”) eight (8) days after the date
you execute it below and have returned all Company property in your possession, unless it is earlier revoked by you pursuant to
the provisions set forth in the “Revocation Rights” section of this Agreement. |
| 19. | Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its respective
successors and assigns, and upon you and any of your heirs, personal representatives and assigns, except that my duties hereunder
may not be delegated. |
| 20. | Interpretation. The language used in this Amended Agreement shall not be construed in favor of or against either of
the Parties, but shall be construed as if both of the Parties prepared this Amended Agreement. The language used in this Amended
Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction
shall be applied against any such Party. |
| 21. | Section 409A. This Agreement is intended comply with the requirements of Code Section 409A of the Internal Revenue Code
of 1986, as amended, and the Department of Treasury guidance thereunder (“Section 409A”). This Agreement shall be interpreted
and administered to maximize the exemptions from Section 409A for the compensation payable pursuant to this Agreement and, to the
extent the Agreement provides for compensation that is subject to Section 409A, to comply with Section 409A and to avoid the imposition
of tax, interest and/or penalties upon you under Section 409A. The Company does not, however, assume any economic burdens associated
with Section 409A. In particular, the Company will not be liable to you for any tax, interest, or penalties you may owe as a result
of this Agreement. The payment specified in Section 2(b)(i)(A) is intended to be exempt from Section 409A pursuant to a combination
of the short-term deferral exemption and the two-times exception of Treasury Reg. § 1.409A-1(b)(9)(iii). Each installment
payment specified in Sections 2(b)(i)(B) and 2(b)(i)(C) is a separate payment for purposes of Section 409A. All such installment
payments are scheduled to be made more than six months following the Separation Date and thus are intended to satisfy the six-month
delay, as necessary, as specified below. The payments specified in Sections 2(b)(ii) and 2(b)(iii) are intended to be exempt from
Section 409A as short-term deferrals. To the extent necessary to comply with Section 409A, in no event shall you, directly or indirectly,
designate the taxable year of any payment under this Agreement. In particular, with respect to any payment that is conditioned
upon your executing and not revoking the release of claims as specified herein, if the designated payment period for such payment
begins in one taxable year and ends in the next taxable year, the payment will be made in the later taxable year. To the extent
necessary to comply with Section 409A, references in this Agreement to “termination of employment” or “terminates
employment” (and similar references) shall have the same meaning as “separation from service” within the meaning
of Section 409A (a “Separation from Service”), and no payment subject to Section 409A that is payable upon a termination
of employment shall be paid unless and until (and not later than applicable in compliance with Section 409A) you incur a Separation
from Service. In addition, if you are a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) at the
time of your Separation from Service, any payment subject to Section 409A that would otherwise have been payable on account of,
and within the first six months following, your Separation from Service will become payable on the first business day after six
months following the Separation Date or, if earlier, the date of your death. |
| 22. | Acknowledgments. If the terms of this Agreement correctly set forth our agreement, please so indicate by signing in
the appropriate space below. Your signature will be an acknowledgment that no other promise or agreement of any kind has been made
to you by the Company to cause you to execute this Agreement, that you had twenty-one (21) days to review this Agreement and to
consult with an attorney or other person of your choosing about its terms before signing it, that the only consideration for your
signature is as indicated above, that you fully understand and accept this Agreement, that you are not coerced into signing it,
and that you signed it knowingly and voluntarily because it is satisfactory to you. |
[Signatures
on Following Page]
CAMPUS CREST
COMMUNITIES, INC.
By: |
/s/ Dan Simmons |
|
|
Dan Simmons |
|
|
Chairman, Compensation Committee of the Board of Directors |
|
I have carefully read the above Confidential First Restated
Separation Agreement and General Release, understand the meaning and intent thereof, and voluntarily agree to its terms this 17th
day of February, 2015.
/s/ Ted W. Rollins |
|
Ted W. Rollins |
|
Exhibit 31.1
Certification
Of Interim Chief Executive Officer Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
I,
David Coles, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Campus Crest Communities, Inc.; |
|
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
4. |
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
(c) |
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
(d) |
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
|
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Dated: July 24, 2015 |
By: |
/s/ David Coles |
|
|
|
David Coles |
|
|
|
Interim Chief Executive Officer |
|
Exhibit 31.2
Certification
Of Interim Chief Financial Officer Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
I,
John Makuch, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Campus Crest Communities, Inc.; |
|
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
4. |
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
(c) |
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
(d) |
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
|
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Dated: July 24, 2015 |
By: |
/s/ John Makuch |
|
|
|
John Makuch |
|
|
|
Interim Chief Financial Officer |
|
Exhibit 32.1
Certification
of Interim Chief Executive Officer and Interim Chief Financial Officer
Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002
In
connection with the Quarterly Report on Form 10-Q of Campus Crest Communities, Inc. (the "Company") for the period ended
March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned
officers of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
|
1. |
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
|
|
|
|
2. |
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: July 24, 2015 |
By: |
/s/ David Coles |
|
|
|
Name: |
David Coles |
|
|
|
Title: |
Interim Chief Executive Officer |
|
|
|
|
|
|
By: |
/s/ John Makuch |
|
|
|
Name: |
John Makuch |
|
|
|
Title: |
Interim Chief Financial Officer |
|
Lehman Abs Mbna Capa (NYSE:CCG)
Historical Stock Chart
From May 2024 to Jun 2024
Lehman Abs Mbna Capa (NYSE:CCG)
Historical Stock Chart
From Jun 2023 to Jun 2024