American Campus Communities, Inc. Reports Third Quarter 2020 Financial Results

Rhea-AI Summary

American Campus Communities reported a net loss of $19.5 million for Q3 2020, translating to $0.15 per diluted share, compared to a net income of $20.2 million or $0.14 per share in Q3 2019. Revenue fell to $202.7 million, down 11% year-over-year, largely due to COVID-19 impacts, including $15 million in rent relief. Same store net operating income decreased by 14% to $81.8 million. However, 97% of September rent was collected, and the company achieved a 1.1% average rental rate increase. The company maintains a strong balance sheet with $44.4 million in cash and a $723.3 million credit facility available.

Positive

• 97% rent collection in September indicating improved tenant stability.
• Achieved 1.1% average rental rate increase.
• Strong balance sheet with $44.4 million in cash available.

Negative

• Reported a net loss of $19.5 million, compared to net income of $20.2 million in Q3 2019.
• Total revenue decreased by 11% to $202.7 million.
• Same store net operating income decreased by 14% compared to the prior year.

AUSTIN, Texas--(BUSINESS WIRE)--American Campus Communities, Inc. (NYSE:ACC) today announced the following financial results for the quarter ended September 30, 2020.

Highlights

• Reported net loss attributable to ACC of $19.5 million or $0.15 per fully diluted share, versus net income of $20.2 million or $0.14 per fully diluted share in the third quarter 2019.

• Reported FFOM of $45.2 million or $0.32 per fully diluted share versus $64.1 million or $0.46 per fully diluted share for the third quarter prior year.

• Same store net operating income ("NOI") decreased by 14.0 percent versus the third quarter 2019, as revenues decreased 9.3 percent and operating expenses decreased 5.2 percent. Same store revenues were impacted by approximately $15.0 million of rent relief, lost revenues from summer camps and conferences, waived fees, increased uncollectible accounts primarily associated with previous academic year leases, and other COVID-19 related items. In addition, due to the decrease in occupancy of the same store portfolio for Academic Year 2020-2021, same store revenues for the quarter were approximately $8.6 million below those anticipated prior to the impacts of COVID-19.

• Received payments for approximately 97 percent of rent for the month of September, the first full month of the new academic year.

• Achieved an average rental rate increase of 1.1 percent and 90.3 percent leased for 2021 same store properties as of September 30, 2020 versus 97.4 percent for the same date prior year.

• Delivered two owned American Campus Equity (ACE^®) developments and the second phase of the Disney College Program project into service on schedule and within budget.

• Commenced construction on a third-party on-campus development project at Georgetown University. The 476-bed development is located four blocks from the United States Capitol and is tracking LEED Platinum certification.

• Earned Great Place to Work^™ certification based on extensive ratings provided by employees in anonymous surveys, resulting in 97 percent of employees responding that ACC is a great place to work, 98 percent agreeing that management is honest and ethical in its business practices and that 98 percent are proud to tell others they work at ACC.

• Recognized for the second consecutive year as an honoree of Texan by Nature 20 (TxN20), an official ranking of the top 20 companies in Texas for its leadership and commitment to conservation and sustainability.

“While the COVID-19 pandemic has presented many challenges for us all, we are pleased with the outcome of the Fall 2020 lease-up and the consumer sentiment reflecting students’ desire to be in the college environment with their peers regardless of the method of curriculum delivery. We are also encouraged that our collection rates have been improving, with approximately 97 percent of rent being paid for the month of September versus the downward trend being experienced in other sectors,” said Bill Bayless, American Campus Communities CEO. “Once again, the student housing industry exhibited a large degree of resiliency in the Fall 2020 lease-up, with Axiometrics reporting growth in same store rental rates across the industry. More broadly, we are encouraged by the universities’ policies and procedures this fall as these institutions continue to promote a safe environment to promote academic achievement and personal growth among students. In recent weeks, several universities have announced planned expansions of in-person activities for the Spring 2021 term based upon the success of their current operating policies as we continue to progress toward a return to normalcy throughout the 2020-2021 academic year.”

Third Quarter Operating Results

Revenue for the 2020 third quarter totaled $202.7 million versus $227.7 million in the third quarter 2019, and operating income for the quarter totaled $8.2 million versus $27.3 million in the prior year third quarter. The decrease in revenue and operating income was primarily due to the impacts of COVID-19, including a decrease in owned properties’ occupancy from the Academic Year 2020-2021 lease-up, with owned property revenues for the quarter declining approximately $12.6 million versus those initially anticipated prior to the impact of COVID-19. Additionally, COVID-19 related rent abatements, early lease terminations, lost revenue from summer camps and conferences, increased uncollectible accounts primarily associated with previous academic year leases and waived fee income totaled approximately $15.1 million, partially offset by a decrease in owned properties operating expenses of $5.3 million. Net loss for the 2020 third quarter totaled $19.5 million, or $0.15 per fully diluted share, compared with net income of $20.2 million, or $0.14 per fully diluted share for the same quarter in 2019. FFO for the 2020 third quarter totaled $45.0 million, or $0.32 per fully diluted share, as compared to $86.0 million, or $0.62 per fully diluted share for the same quarter in 2019. FFOM for the 2020 third quarter was $45.2 million, or $0.32 per fully diluted share, as compared to $64.1 million, or $0.46 per fully diluted share for the same quarter in 2019. A reconciliation of FFO and FFOM to net income is provided in Table 3.

NOI for same store properties was $81.8 million in the quarter, a decrease of 14.0 percent from $95.0 million in the third quarter 2019. Same store property revenues decreased by 9.3 percent and same store property operating expenses decreased by 5.2 percent versus the prior year quarter. NOI for the total owned portfolio decreased 14.2 percent to $85.8 million for the quarter from $100.0 million in the comparable period of 2019. A reconciliation of same store NOI to total NOI is provided in Table 4.

Portfolio Update

Developments

During the quarter, the company completed the $46.9 million second phase of the Disney College Program development on schedule and within budget. Due to the COVID-19 related temporary suspension of the Disney College Program, the phase was not occupied as originally scheduled. Walt Disney World^® Resort continues to take a measured and phased approach to opening and is currently reviewing the timing for resuming the Disney College Program and the related occupancy of the project. In support of the relationship, Walt Disney World^® has agreed that ground rent will not commence until occupancy occurs and is also in discussions with ACC to market and lease the project to a broader rental market until the internship program is resumed to a level at which participants can fully occupy the available beds. The company continues construction on the remaining phases of the project, which are expected to be completed as originally anticipated through 2023. Collectively, the Disney College Program project represents $614.6 million in development cost and the company still expects to meet its original targeted stabilized development yield of 6.8 percent.

During the quarter, the company also completed two development projects totaling $170.9 million on the campuses of the University of Southern California Health Sciences and San Francisco State University on schedule and within budget. Due primarily to university policies related to COVID-19, initial occupancy levels for these new developments are below those originally anticipated but the company currently expects to meet the targeted stabilized development yields of 6.25 percent for Academic Year 2021-2022.

Third-Party Services

The company commenced construction on a 476-bed third-party on-campus development project with Georgetown University, which is located on Georgetown’s Capitol Campus and is tracking LEED Platinum certification. The company expects to earn $3.0 million in development fees throughout the development period and anticipates providing management services for the project upon completion.

Capital Markets

As of September 30, 2020, the company exhibited a healthy balance sheet with ample liquidity including approximately $44.4 million in cash and $723.3 million available on its unsecured revolving credit facility. In addition, there are no remaining debt maturities in 2020 and approximately $72.3 million in planned development expenditures for the remainder of the year.

At-The-Market (ATM) Share Offering Program

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

COVID-19 Update

The company continues to implement its COVID-19 response plan consistent with the eight principle objectives previously reported. The company continues to collaborate in good faith with its university partners, and at the request of one of these partners, agreed to refund a portion of students’ rent that had on-campus lease terms spanning the third and fourth quarter. During the third quarter, refunded rent totaled $2.1 million and the company anticipates an additional $1.2 million for the fourth quarter of 2020, as compared to the $15.1 million in on-campus rent refunds provided during the second quarter of 2020. No other rental refunds related to the company’s on-campus ACE properties are being discussed at this time.

During the quarter, the company collected an average of 94.6 percent of rent, representing total delinquency of approximately $8.5 million. This compares to 93.7 percent during the second quarter of 2020, which represented total rent delinquency of $10.4 million. With the inception of new lease contracts for Academic Year 2020-2021, the company experienced substantial improvement in collections with 96.9 percent of September rent being paid.

As previously announced, during the second quarter, the company formed a Resident Hardship Program to provide relief on a case-by-case basis to those residents and families who have endured financial hardship due to the COVID-19 pandemic. For the months of July through September, of the total $8.5 million in delinquent rent noted above, the company granted approximately $4.7 million in rent relief to residents under the Resident Hardship Program.

Supplemental Information and Earnings Conference Call

Supplemental financial and operating information, as well as this release, are available in the investor relations section of the American Campus Communities website, www.americancampus.com. In addition, the company will host a conference call to discuss third quarter results and the 2020 outlook on Tuesday, October 27, 2020 at 10:00 a.m. ET (9:00 a.m. CT). The conference call may be accessed by dialing 888-317-6003 passcode 1389446, or 412-317-6061 for international participants.

To listen to the live webcast, go to www.americancampus.com at least 15 minutes prior to the call so that required audio software can be downloaded. A replay of the conference call will be available beginning one hour after the end of the call until November 10, 2020 by dialing 877-344-7529 or 412-317-0088 conference number 10148202. Additionally, the replay will be available for one year at www.americancampus.com.

Non-GAAP Financial Measures

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

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

About American Campus Communities

American Campus Communities, Inc. is the largest owner, manager and developer of high-quality student housing communities in the United States. The company is a fully integrated, self-managed and self-administered equity real estate investment trust (REIT) with expertise in the design, finance, development, construction management and operational management of student housing properties. As of September 30, 2020, American Campus Communities owned 166 student housing properties containing approximately 111,900 beds. Including its owned and third-party managed properties, ACC's total managed portfolio consisted of 204 properties with approximately 139,900 beds. Visit www.americancampus.com.

Forward-Looking Statements

In addition to historical information, this press release contains forward-looking statements under the applicable federal securities law. These statements are based on management’s current expectations and assumptions regarding markets in which American Campus Communities, Inc. (the “Company”) operates, operational strategies, anticipated events and trends, the economy, and other future conditions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. These risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward looking-statements include those related to the COVID-19 pandemic, about which there are still many unknowns, including the duration of the pandemic and the extent of its impact, and those discussed in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Risk Factors” and under the heading “Business - Forward-looking Statements” and subsequent quarterly reports on Form 10-Q. We undertake no obligation to publicly update any forward-looking statements, including our preleasing activity or expected full year 2020 operating results, whether as a result of new information, future events, or otherwise.

Table 1 American Campus Communities, Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands)
		September 30, 2020				December 31, 2019
		(unaudited)
Assets
Investments in real estate:
Owned properties, net		$	6,704,952			$	6,694,715
On-campus participating properties, net			71,156				75,188
Investments in real estate, net			6,776,108				6,769,903
Cash and cash equivalents			44,449				54,650
Restricted cash			23,528				26,698
Student contracts receivable, net			22,008				13,470
Operating lease right of use assets 1			458,330				460,857
Other assets 1			257,101				234,176
Total assets		$	7,581,524			$	7,559,754
Liabilities and equity
Liabilities:
Secured mortgage, construction and bond debt, net		$	740,128			$	787,426
Unsecured notes, net			2,374,680				1,985,603
Unsecured term loans, net			199,385				199,121
Unsecured revolving credit facility			276,700				425,700
Accounts payable and accrued expenses			87,638				88,411
Operating lease liabilities 2			483,694				473,070
Other liabilities 2			202,775				157,368
Total liabilities			4,365,000				4,116,699
Redeemable noncontrolling interests			20,889				104,381
Equity:
American Campus Communities, Inc. and Subsidiaries stockholders’ equity:
Common stock			1,375				1,373
Additional paid in capital			4,472,489				4,458,456
Common stock held in rabbi trust			(3,951	)			(3,486	)
Accumulated earnings and dividends			(1,292,364	)			(1,144,721	)
Accumulated other comprehensive loss			(24,614	)			(16,946	)
Total American Campus Communities, Inc. and Subsidiaries stockholders’ equity			3,152,935				3,294,676
Noncontrolling interests – partially owned properties			42,700				43,998
Total equity			3,195,635				3,338,674
Total liabilities and equity		$	7,581,524			$	7,559,754
For purposes of calculating net asset value ("NAV") at September 30, 2020, the company excludes other assets of approximately $3.1 million related to net deferred financing costs on its revolving credit facility and the net value of in-place leases, as well as operating lease right of use assets disclosed above. For purposes of calculating NAV at September 30, 2020, the company excludes other liabilities of approximately $70.6 million related to deferred revenue and fee income, as well as operating lease liabilities disclosed above.

Table 2 American Campus Communities, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (dollars in thousands, except share and per share data)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
		(unaudited)								(unaudited)
Revenues
Owned properties 1		$	191,710			$	211,082			$	600,987			$	638,657
On-campus participating properties		5,386				6,944				20,196				24,788
Third-party development services		2,186				5,611				5,531				12,389
Third-party management services		2,771				3,342				9,268				9,118
Resident services		622				726				1,644				2,255
Total revenues		202,675				227,705				637,626				687,207
Operating expenses (income)
Owned properties		106,518				111,836				284,741				294,768
On-campus participating properties		3,783				3,822				10,357				11,585
Third-party development and management services		5,061				5,430				16,245				14,129
General and administrative 2		8,638				7,165				28,563				22,595
Depreciation and amortization		67,369				68,930				199,979				206,500
Ground/facility leases		3,071				3,215				10,033				10,000
(Gain) loss from disposition of real estate		—				—				(48,525)				282
Provision for impairment		—				—				—				3,201
Total operating expenses		194,440				200,398				501,393				563,060
Operating income		8,235				27,307				136,233				124,147
Nonoperating income (expenses)
Interest income		855				960				2,576				2,855
Interest expense		(29,056)				(28,303)				(84,007)				(82,432)
Amortization of deferred financing costs		(1,349)				(1,315)				(3,891)				(3,665)
Gain (loss) from extinguishment of debt 3		—				20,992				(4,827)				20,992
Other nonoperating income		264				—				264				—
Total nonoperating expenses		(29,286)				(7,666)				(89,885)				(62,250)
(Loss) income before income taxes		(21,051)				19,641				46,348				61,897
Income tax provision		(373)				(305)				(1,133)				(983)
Net (loss) income		(21,424)				19,336				45,215				60,914
Net loss (income) attributable to noncontrolling interests		1,909				887				2,781				(665)
Net (loss) income attributable to ACC, Inc. and Subsidiaries common stockholders		$	(19,515)			$	20,223			$	47,996			$	60,249
Other comprehensive income (loss)
Change in fair value of interest rate swaps and other		1,851				(145)				(7,668)				(14,532)
Comprehensive (loss) income		$	(17,664)			$	20,078			$	40,328			$	45,717
Net (loss) income per share attributable to ACC, Inc. and Subsidiaries common shareholders
Basic		$	(0.15)			$	0.14			$	0.34			$	0.43
Diluted		$	(0.15)			$	0.14			$	0.33			$	0.43
Weighted-average common shares outstanding
Basic		137,632,091				137,403,842				137,574,485				137,259,130
Diluted		137,632,091				138,375,527				138,678,713				138,257,906
Refer to Table 4 for more detail regarding the impact of the COVID-19 pandemic on revenues for our same store portfolio. General and administrative expenses for the nine months ended September 30, 2020 include $1.1 million related to the settlement of a litigation matter. The three and nine months ended September 30, 2019 amounts represent the gain on the extinguishment of debt associated with a property that was transferred to the lender in settlement of the property's mortgage loan in July 2019. The nine months ended September 30, 2020 amount represents the loss associated with the January 2020 redemption of the Company's $400 million 3.35% Senior Notes originally scheduled to mature in October 2020.

Table 3 American Campus Communities, Inc. and Subsidiaries Consolidated Statements of Funds from Operations (“FFO”) (unaudited, dollars in thousands, except share and per share data)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Net (loss) income attributable to ACC, Inc. and Subsidiaries common stockholders		$	(19,515)			$	20,223			$	47,996			$	60,249
Noncontrolling interests' share of net (loss) income		(1,909)				(887)				(2,781)				665
Joint Venture ("JV") partners' share of FFO
JV partners' share of net loss (income)		1,857				970				2,987				(368)
JV partners' share of depreciation and amortization		(1,944)				(2,145)				(5,836)				(6,488)
		(87)				(1,175)				(2,849)				(6,856)
(Gain) loss from disposition of real estate		—				—				(48,525)				282
Elimination of provision for real estate impairment		—				—				—				3,201
Total depreciation and amortization		67,369				68,930				199,979				206,500
Corporate depreciation 1		(858)				(1,135)				(2,632)				(3,528)
FFO attributable to common stockholders and OP unitholders		45,000				85,956				191,188				260,513
Elimination of operations of on-campus participating properties ("OCPPs")
Net loss (income) from OCPPs		1,294				424				(206)				(2,138)
Amortization of investment in OCPPs		(1,883)				(2,289)				(5,965)				(6,334)
		44,411				84,091				185,017				252,041
Modifications to reflect operational performance of OCPPs
Our share of net cashflow 2		518				353				1,632				2,063
Management fees and other		319				369				1,146				1,597
Contribution from OCPPs		837				722				2,778				3,660
Transaction costs 3		—				147				—				147
Elimination of (gain) loss from extinguishment of debt 4		—				(20,992)				4,827				(20,992)
Elimination of litigation settlement expense 5		—				—				1,100				—
Elimination of FFO from property in receivership 6		—				104				—				1,912
Funds from operations-modified (“FFOM”) attributable to common stockholders and OP unitholders		$	45,248			$	64,072			$	193,722			$	236,768
FFO per share - diluted		$	0.32			$	0.62			$	1.37			$	1.88
FFOM per share - diluted		$	0.32			$	0.46			$	1.39			$	1.71
Weighted-average common shares outstanding - diluted		139,235,064				138,879,244				139,182,430				138,854,970
Represents depreciation on corporate assets not added back for purposes of calculating FFO. 50% of the properties’ net cash available for distribution after payment of operating expenses, debt service (including repayment of principal) and capital expenditures which is included in ground/facility leases expense in the consolidated statements of comprehensive income (refer to Table 2). The decrease as compared to prior year is a result of the universities' decisions to provide rent abatements to tenants during the latter part of the 2019/2020 academic year and the lower occupancy achieved for the 2020/2021 academic year as a result of COVID-19. Represents transaction costs incurred in connection with the closing of one presale transaction in August 2019. The three and nine months ended September 30, 2019 amounts represent the gain on the extinguishment of debt associated with a property that was transferred to the lender in settlement of the property's mortgage loan in July 2019. The nine months ended September 30, 2020 amount represents the loss associated with the January 2020 redemption of the Company's $400 million 3.35% Senior Notes originally scheduled to mature in October 2020. Represents the settlement of a litigation matter that is included in general and administrative expenses in the accompanying consolidated statements of comprehensive income. Represents FFO for an owned property that was transferred to the lender in July 2019 in settlement of the property's mortgage loan.

Table 4 American Campus Communities, Inc. and Subsidiaries Owned Properties Results of Operations1 (unaudited, dollars in thousands)
		Three Months Ended September 30,															Nine Months Ended September 30,
		2020				2019				$ Change				% Change			2020				2019				$ Change				% Change
Owned properties revenues
Same store properties 2		$	182,728			$	201,564			$	(18,836)			(9.3	%)		$	571,861			$	617,195			$	(45,334)			(7.3	%)
New properties		9,604				4,667				4,937							28,069				5,110				22,959
Sold and held for sale properties 3		—				5,577				(5,577)							2,701				18,607				(15,906)
Total revenues 4		$	192,332			$	211,808			$	(19,476)			(9.2	%)		$	602,631			$	640,912			$	(38,281)			(6.0	%)
Owned properties operating expenses
Same store properties		$	100,950			$	106,526			$	(5,576)			(5.2	%)		$	271,175			$	281,689			$	(10,514)			(3.7	%)
New properties		5,386				2,608				2,778							12,266				3,792				8,474
Other 5		182				75				107							283				210				73
Sold and held for sale properties 3 6		—				2,627				(2,627)							1,017				9,077				(8,060)
Total operating expenses		$	106,518			$	111,836			$	(5,318)			(4.8	%)		$	284,741			$	294,768			$	(10,027)			(3.4	%)
Owned properties net operating income
Same store properties		$	81,778			$	95,038			$	(13,260)			(14.0	%)		$	300,686			$	335,506			$	(34,820)			(10.4	%)
New properties		4,218				2,059				2,159							15,803				1,318				14,485
Other 5		(182)				(75)				(107)							(283)				(210)				(73)
Sold and held for sale properties 3 6		—				2,950				(2,950)							1,684				9,530				(7,846)
Total net operating income		$	85,814			$	99,972			$	(14,158)			(14.2	%)		$	317,890			$	346,144			$	(28,254)			(8.2	%)

1.	The same store grouping above represents properties owned and operating for both of the entire years ended December 31, 2020 and 2019, which are not conducting or planning to conduct substantial development, redevelopment, or repositioning activities, and are not classified as held for sale as of September 30, 2020. Includes the full operating results of properties owned through joint ventures in which the company has a controlling financial interest and which are consolidated for financial reporting purposes.
2.	The most significant impacts to our third quarter same store property revenues resulting from COVID-19 are as follows:
	– Approximately $2.1 million and $17.2 million in rent refunds and/or early lease terminations was provided to tenants at our on-campus ACE properties and certain off-campus residence halls during the three and nine months ended September 30, 2020, respectively;
	– Approximately $4.5 million and $12.7 million in rent was forgiven during the three and nine months ended September 30, 2020, respectively, as part of our Resident Hardship Program for residents and families at our same store properties who experienced financial hardship due to COVID-19;
	– Approximately $8.4 million and $15.8 million of the decrease during the three and nine months ended September 30, 2020, respectively, as compared to the prior year was a result of lost summer camp and conference revenue, waived fees, an increase in the provision for uncollectible accounts resulting from rent delinquencies, and other items;
	– Approximately $8.6 million decrease in revenues as compared to the amount initially anticipated prior to the impact of COVID-19 for the three months and nine months ended September 30,2020, due to the decrease in occupancy from the Academic Year 2020-2021 lease up.
3.	Includes properties sold in 2019 and 2020 and one property that was transferred to the lender in July 2019 in settlement of the property's mortgage loan.
4.	Includes revenues that are reflected as Resident Services Revenue on the accompanying consolidated statements of comprehensive income.
5.	Includes professional fees related to the operation of consolidated joint ventures that are included in owned properties operating expenses in the consolidated statements of comprehensive income (refer to Table 2).
6.	Does not include the allocation of payroll and other administrative costs related to corporate management and oversight.