10-Q 1 edr20170331-10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
or
o
 
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 001-32417
Education Realty Trust, Inc.
Education Realty Operating Partnership, LP

(Exact Name of Registrant as Specified in Its Charter)
Maryland
 
20-1352180
Delaware
 
20-1352332
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
999 South Shady Grove Road, Suite 600
Memphis, Tennessee
 
38120
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code (901) 259-2500

Not Applicable
(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.
Education Realty Trust, Inc.                            Yes x No o
Education Realty Operating Partnership, LP                    Yes x No o

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Education Realty Trust, Inc.                            Yes x No o
Education Realty Operating Partnership, LP                    Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Education Realty Trust, Inc.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company o

Education Realty Operating Partnership, LP
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller reporting company)
 
Smaller reporting company o
 
 
Emerging growth company o

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Education Realty Trust, Inc.                            Yes o No x
Education Realty Operating Partnership, LP                    Yes o No x

As of April 28, 2017, Education Realty Trust, Inc. had 73,182,270 shares of common stock outstanding.



EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended March 31, 2017 of Education Realty Trust, Inc. and Education Realty Operating Partnership, LP. Unless stated otherwise or the context otherwise requires, references to “EdR” mean only Education Realty Trust, Inc. a Maryland corporation, and references to “EROP” mean only Education Realty Operating Partnership, LP, a Delaware limited partnership. References to the "Trust," "we," "us," or "our" mean collectively EdR, EROP and those entities/subsidiaries owned or controlled by EdR and/or EROP. References to the "Operating Partnership" mean collectively EROP and those entities/subsidiaries owned or controlled by EROP. The following chart illustrates our corporate structure:

    a061eropcharta02.jpg

The general partner of EROP is Education Realty OP GP, Inc. (the “OP GP”), an entity that is indirectly wholly-owned by EdR. As of March 31, 2017, OP GP held an ownership interest in EROP of less than 1%. The limited partners of EROP are Education Realty OP Limited Partner Trust, a wholly-owned subsidiary of EdR, and other limited partners consisting of current and former members of management. The OP GP, as the sole general partner of EROP, has the responsibility and discretion in the management and control of the Operating Partnership, and the limited partners of EROP, in such capacity, have no authority to transact business for, or participate in the management activities of the Operating Partnership. Management operates EdR and the Operating Partnership as one business. The management of EdR consists of the same members as the management of the Operating Partnership.

The Trust is structured as an umbrella partnership real estate investment trust (“UPREIT”) and EdR contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, EdR receives an equal number of partnership units of EROP (the “OP Units”). Contributions of properties to the Trust can be structured as tax-deferred transactions through the issuance of OP Units. Holders of OP Units may tender their OP Units for redemption by the Operating Partnership in exchange for cash equal to the market price of EdR's common stock at the time of redemption or, at EdR's option, for shares of EdR's common stock. Pursuant to the partnership agreement of EROP, the number of shares to be issued upon the redemption of OP Units is equal to the number of OP Units being redeemed. Additionally, for every one share of common stock offered and sold by EdR for cash, EdR must contribute the net proceeds to EROP and, in return, EROP will issue one OP Unit to EdR.

The Trust believes that combining the quarterly reports on Form 10-Q of EdR and the Operating Partnership into this single report provides the following benefits:

enhances investors’ understanding of the Trust by enabling investors to view the business of EdR and the Operating Partnership as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both EdR and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.




EdR consolidates the Operating Partnership for financial reporting purposes, and EdR essentially has no assets or liabilities other than its investment in the Operating Partnership. Therefore, the assets and liabilities of EdR and the Operating Partnership are the same on their respective financial statements. However, the Trust believes it is important to understand the few differences between EdR and the Operating Partnership in the context of how the entities operate as a consolidated company. All of the Trust's property ownership, development and related business operations are conducted through the Operating Partnership. EdR also issues public equity from time to time and guarantees certain debt of EROP. EdR does not have any indebtedness, as all debt is incurred by the Operating Partnership. The Operating Partnership holds all of the assets of the Trust, including the Trust’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from EdR’s equity offerings, which are contributed to the capital of EROP in exchange for OP Units on the basis of one share of common stock for one OP Unit, the Operating Partnership generates all remaining capital required by the Trust's business, including as a result of the incurrence of indebtedness. These sources include, but are not limited to, the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its credit facilities, proceeds from mortgage indebtedness and debt issuances, and proceeds received from the disposition of certain properties. Noncontrolling interests, stockholders’ equity, and partners’ capital are the main areas of difference between the consolidated financial statements of the Trust and those of the Operating Partnership. The noncontrolling interests in the Operating Partnership’s financial statements consist of the interests of unaffiliated partners in various consolidated joint ventures. The noncontrolling interests in the Trust's financial statements include the same noncontrolling interests at the Operating Partnership level. The differences between stockholders’ equity and partners’ capital result from differences in the type of equity issued by EdR and the Operating Partnership.

To help investors understand the significant differences between the Trust and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Trust and the Operating Partnership. A single set of consolidated notes to such financial statements is presented that includes separate discussions for the Trust and the Operating Partnership when applicable (for example, noncontrolling interests, stockholders’ equity or partners’ capital, earnings per share or unit, etc.). A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents discrete information related to each entity, as applicable.
 
In order to highlight the differences between the Trust and the Operating Partnership, the separate sections in this report for the Trust and the Operating Partnership specifically refer to the Trust and the Operating Partnership. In the sections that combine disclosure of the Trust and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Trust. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Trust is appropriate because the Trust operates its business through the Operating Partnership. The separate discussions of the Trust and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Trust on a consolidated basis and how management operates the Trust.




Education Realty Trust, Inc.
Education Realty Operating Partnership, LP
Form 10-Q
For the Quarter Ended March 31, 2017
Table of Contents
 
 
 
Page Number
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1. Condensed Consolidated Financial Statements of Education Realty Trust, Inc. and Subsidiaries:
 
 
 
Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016
 
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2017 and 2016
 
 
Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2017 and 2016
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016
 
Condensed Consolidated Financial Statements of Education Realty Operating Partnership, LP and Subsidiaries:
 
 
 
Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016
 
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2017 and 2016
 
 
Condensed Consolidated Statements of Changes in Partners' Capital and Noncontrolling Interests for the three months ended March 31, 2017 and 2016
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016
 
Notes to Condensed Consolidated Financial Statements
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
Item 4. Controls and Procedures.
 
 
 
 
PART II - OTHER INFORMATION
 
 
Item 1. Legal Proceedings.
 
Item 1A. Risk Factors.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
Item 3. Defaults Upon Senior Securities.
 
Item 4. Mine Safety Disclosures.
 
Item 5. Other Information.
 
Item 6. Exhibits.
 
Signatures.
 




PART I - Financial Information

Item 1. Financial Statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(Unaudited)
 
March 31, 2017
 
December 31, 2016
Assets:
  

 
  

Collegiate housing properties, net
$
2,212,845

 
$
2,108,706

Assets under development
394,906

 
289,942

Cash and cash equivalents
34,922

 
34,475

Restricted cash
7,714

 
7,838

Other assets
69,461

 
65,224

Total assets
$
2,719,848

 
$
2,506,185

 
 
 
 
Liabilities:
  

 
  

Mortgage and construction loans, net of unamortized deferred financing costs
$
29,776

 
$
62,520

Unsecured revolving credit facility
260,000

 
20,000

Unsecured term loan, net of unamortized deferred financing costs
186,314

 
186,738

Unsecured senior notes, net of unamortized deferred financing costs
248,004

 
247,938

Accounts payable and accrued expenses
135,800

 
127,872

Deferred revenue
24,923

 
20,727

Total liabilities
884,817

 
665,795

 
 
 
 
Commitments and contingencies (see Note 7)

 

 
 
 
 
Redeemable noncontrolling interests
45,631

 
38,949

 
 
 
 
Equity:
  

 
  

Common stock, $0.01 par value per share, 200,000,000 shares authorized, 73,180,531 and 73,075,455 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
732

 
731

Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, no shares issued and outstanding

 

Additional paid-in capital
1,789,755

 
1,802,852

Retained earnings

 

Accumulated other comprehensive loss
(2,486
)
 
(3,564
)
Total Education Realty Trust, Inc. stockholders’ equity
1,788,001

 
1,800,019

Noncontrolling interests
1,399

 
1,422

Total equity
1,789,400

 
1,801,441

Total liabilities and equity
$
2,719,848

 
$
2,506,185





See accompanying notes to the condensed consolidated financial statements.

1


EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
Three months ended March 31,
 
2017
 
2016
Revenues:
 
 
 
Collegiate housing leasing revenue
$
80,785

 
$
70,183

Third-party development consulting services
1,815

 
483

Third-party management services
945

 
894

Operating expense reimbursements
2,253

 
1,819

Total revenues
85,798

 
73,379

Operating expenses:
 
 
 
Collegiate housing leasing operations
28,877

 
24,889

Development and management services
2,901

 
2,521

General and administrative
3,427

 
3,109

Depreciation and amortization
25,839

 
17,516

Ground lease expense
3,560

 
3,309

Other operating expense
500

 

Reimbursable operating expenses
2,253

 
1,819

Total operating expenses
67,357

 
53,163

 
 
 
 
Operating income
18,441

 
20,216

 
 
 
 
Nonoperating (income) expenses:
 
 
 
Interest expense, net
3,028

 
4,663

Amortization of deferred financing costs
421

 
480

Interest income
(32
)
 
(74
)
Loss on extinguishment of debt
22

 
9,920

Total nonoperating expenses
3,439

 
14,989

Income before equity in earnings (losses) of unconsolidated entities, income taxes and gain on sale of collegiate housing properties
15,002

 
5,227

Equity in earnings (losses) of unconsolidated entities
255

 
(244
)
Income before income taxes and gain on sale of collegiate housing properties
15,257

 
4,983

Income tax (benefit) expense
(885
)
 
51

Income before gain on sale of collegiate housing properties
16,142

 
4,932

Gain on sale of collegiate housing properties

 
11,873

Net income
16,142

 
16,805

Less: Net income (loss) attributable to the noncontrolling interests
(15
)
 
136

Net income attributable to Education Realty Trust, Inc.
$
16,157

 
$
16,669

 
 
 
 


See accompanying notes to the condensed consolidated financial statements.
2



 
Three months ended March 31,
 
2017
 
2016
Comprehensive income:
 
 
 
Net income
$
16,142

 
$
16,805

Other comprehensive loss:
 
 
 
   Gain (loss) on cash flow hedging derivatives
1,078

 
(3,446
)
Comprehensive income
17,220

 
13,359

   Less: Comprehensive income (loss) attributable to the noncontrolling interests
(15
)
 
136

Comprehensive income attributable to Education Realty Trust, Inc.
$
17,235

 
$
13,223

 
 
 
 
Earnings per share information:
 
 
 
Net income attributable to Education Realty Trust, Inc. common stockholders per share – basic
$
0.21

 
$
0.27

Net income attributable to Education Realty Trust, Inc. common stockholders per share – diluted
$
0.21

 
$
0.26

 
 
 
 
Distributions per share of common stock
$
0.38

 
$
0.37

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Weighted average common shares outstanding – basic
73,510

 
62,677

Weighted average common shares outstanding – diluted
73,775

 
62,963








See accompanying notes to the condensed consolidated financial statements.
3



EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands, except shares)
(Unaudited)

 
Common Stock
 
Additional
Paid-In
Capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated Other Comprehensive Loss
 
Noncontrolling
Interests
 
Total
  
Shares
 
Amount
 
Balance, December 31, 2015
56,879,003

 
$
569

 
$
1,263,603

 
$
(21,998
)
 
$
(5,475
)
 
$
8,171

 
$
1,244,870

Proceeds from issuance of common stock, net of offering costs
8,130,670

 
81

 
286,964

 

 

 

 
287,045

Amortization of restricted stock and long-term incentive plan awards
1,989

 

 
357

 

 

 

 
357

Cash dividends

 

 
(23,392
)
 

 

 

 
(23,392
)
Contributions from noncontrolling interests

 

 

 

 

 
3,571

 
3,571

Purchase of noncontrolling interests

 

 
(1,706
)
 

 

 
(2,409
)
 
(4,115
)
Adjustments to reflect redeemable noncontrolling interests at fair value

 

 
(722
)
 

 

 

 
(722
)
Comprehensive income (loss)

 

 

 
16,669

 
(3,446
)
 
(57
)
 
13,166

Balance, March 31, 2016
65,011,662

 
$
650

 
$
1,525,104

 
$
(5,329
)
 
$
(8,921
)
 
$
9,276

 
$
1,520,780

 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 


Balance, December 31, 2016
73,075,455

 
$
731

 
$
1,802,852

 
$

 
$
(3,564
)
 
$
1,422

 
$
1,801,441

Proceeds from issuance of common stock, net of offering costs
108,353

 
1

 
596

 

 

 

 
597

Amortization of long-term incentive plan awards
6

 

 
776

 

 

 

 
776

Surrender of shares to cover taxes on vesting of restricted shares
(3,283
)
 

 
(2,564
)
 

 

 

 
(2,564
)
Cash dividends

 

 
(11,660
)
 
(16,157
)
 

 

 
(27,817
)
Adjustments to reflect redeemable noncontrolling interests at fair value

 

 
238

 

 

 

 
238

Accretion of redeemable noncontrolling interests

 

 
(483
)
 

 

 

 
(483
)
Comprehensive income (loss)

 

 

 
16,157

 
1,078

 
(23
)
 
17,212

Balance, March 31, 2017
73,180,531

 
$
732

 
$
1,789,755

 
$

 
$
(2,486
)
 
$
1,399

 
$
1,789,400



See accompanying notes to the condensed consolidated financial statements.
4



EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Three months ended March 31,
 
2017
 
2016
Operating activities:
  

 
  

Net income
$
16,142

 
$
16,805

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
25,839

 
17,516

Deferred tax expense
725

 

Excess tax benefit related to the vesting of restricted stock
(1,610
)
 

Loss on disposal of assets

 
7

Gain on sale of collegiate housing properties

 
(11,873
)
Noncash rent expense related to the straight-line adjustment for long-term ground leases
1,175

 
1,187

Loss on extinguishment of debt
22

 
9,920

Amortization of deferred financing costs
421

 
480

Amortization of unamortized debt premiums

 
(49
)
Distributions of earnings from unconsolidated entities
177

 

Noncash compensation expense related to stock-based incentive awards
938

 
827

Equity in (earnings) losses of unconsolidated entities
(255
)
 
244

Change in fair value of contingent consideration
500

 

Change in operating assets and liabilities
1,541

 
2,486

Net cash provided by operating activities (net of acquisitions)
45,615

 
37,550

 
 
 
 
Investing activities:
  

 
  

Property acquisitions
(127,647
)
 
(24,357
)
Purchase of corporate assets
(316
)
 
(263
)
Restricted cash
124

 
854

Investment in collegiate housing properties
(2,861
)
 
(4,521
)
Proceeds from sale of collegiate housing properties

 
54,107

Collections on notes receivable

 
1,667

Earnest money deposits
(510
)
 
(735
)
Investment in assets under development
(97,358
)
 
(64,975
)
Distributions from unconsolidated entities
103

 
121

Net cash used in investing activities
(228,465
)
 
(38,102
)


See accompanying notes to the condensed consolidated financial statements.
5



 
Three months ended March 31,
 
2017
 
2016
Financing activities:
  

 
  

Payment of mortgage and construction loans
(32,950
)
 
(98,384
)
Borrowings under construction loans
146

 
12,444

Debt issuance costs
(493
)
 
(55
)
Debt extinguishment costs

 
(10,290
)
Borrowings on line of credit
240,000

 

Proceeds from issuance of common stock

 
286,611

Payment of offering costs
(70
)
 
(307
)
Purchase and return of equity to noncontrolling interests

 
(7,025
)
Contributions from noncontrolling interests
7,131

 
3,571

Dividends and distributions paid to common and restricted stockholders
(27,817
)
 
(23,392
)
Dividends and distributions paid to noncontrolling interests
(87
)
 
(200
)
Repurchases of common stock for payments of restricted stock tax withholding
(2,563
)
 
(315
)
Net cash provided by financing activities
183,297

 
162,658

Net increase in cash and cash equivalents
447

 
162,106

Cash and cash equivalents, beginning of period
34,475

 
33,742

Cash and cash equivalents, end of period
$
34,922

 
$
195,848

 
 
 
 
Supplemental disclosure of cash flow information:
  

 
  

Interest paid, net of amounts capitalized
$

 
$
2,285

Income taxes paid
$
1

 
$
3

 
 
 
 
Supplemental disclosure of noncash activities:
  

 
  

Redemption of redeemable noncontrolling interests from unit holder to shares of common stock
$
1,138

 
$
938

Capital expenditures in accounts payable and accrued expenses related to developments
$
46,218

 
$
25,059




See accompanying notes to the condensed consolidated financial statements.
6



EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except unit data)
(Unaudited)
 
March 31, 2017
 
December 31, 2016
Assets:
  

 
  

Collegiate housing properties, net
$
2,212,845

 
$
2,108,706

Assets under development
394,906

 
289,942

Cash and cash equivalents
34,922

 
34,475

Restricted cash
7,714

 
7,838

Other assets
69,461

 
65,224

Total assets
$
2,719,848

 
$
2,506,185

 
 
 
 
Liabilities:
  

 
  

Mortgage and construction loans, net of unamortized deferred financing costs
$
29,776

 
$
62,520

Unsecured revolving credit facility
260,000

 
20,000

Unsecured term loans, net of unamortized deferred financing costs
186,314

 
186,738

Unsecured senior notes, net of unamortized deferred financing costs
248,004

 
247,938

Accounts payable and accrued expenses
135,800

 
127,872

Deferred revenue
24,923

 
20,727

Total liabilities
884,817

 
665,795

 
 
 
 
Commitments and contingencies (see Note 7)

 

 
 
 
 
Redeemable limited partner units
6,046

 
6,789

 
 
 
 
Redeemable noncontrolling interests
39,585

 
32,160

 
 
 
 
Partners' capital:
 
 
 
General partner - 6,920 units outstanding as of March 31, 2017 and December 31, 2016
177

 
178

Limited partners - 73,173,611 and 73,068,535 units issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
1,790,310

 
1,803,405

Accumulated other comprehensive loss
(2,486
)
 
(3,564
)
Total partners' capital
1,788,001

 
1,800,019

Noncontrolling interests
1,399

 
1,422

Total capital
1,789,400

 
1,801,441

Total liabilities and partners' capital
$
2,719,848

 
$
2,506,185



See accompanying notes to the condensed consolidated financial statements.
7



EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands, except per unit data)
(Unaudited)

 
Three months ended March 31,
 
2017
 
2016
Revenues:
 
 
 
Collegiate housing leasing revenue
$
80,785

 
$
70,183

Third-party development consulting services
1,815

 
483

Third-party management services
945

 
894

Operating expense reimbursements
2,253

 
1,819

Total revenues
85,798

 
73,379

Operating expenses:
 
 
 
Collegiate housing leasing operations
28,877

 
24,889

Development and management services
2,901

 
2,521

General and administrative
3,427

 
3,109

Depreciation and amortization
25,839

 
17,516

Ground lease expense
3,560

 
3,309

Other operating expense
500

 

Reimbursable operating expenses
2,253

 
1,819

Total operating expenses
67,357

 
53,163

 
 
 
 
Operating income
18,441

 
20,216

 
 
 
 
Nonoperating (income) expenses:
 
 
 
Interest expense, net
3,028

 
4,663

Amortization of deferred financing costs
421

 
480

Interest income
(32
)
 
(74
)
Loss on extinguishment of debt
22

 
9,920

Total nonoperating expenses
3,439

 
14,989

Income before equity in earnings (losses) of unconsolidated entities, income taxes and gain on sale of collegiate housing properties
15,002

 
5,227

Equity in earnings (losses) of unconsolidated entities
255

 
(244
)
Income before income taxes and gain on sale of collegiate housing properties
15,257

 
4,983

Income tax (benefit) expense
(885
)
 
51

Income before gain on sale of collegiate housing properties
16,142

 
4,932

Gain on sale of collegiate housing properties

 
11,873

Net income
16,142

 
16,805

Less: Net income (loss) attributable to the noncontrolling interests
(50
)
 
78

Net income attributable to Education Realty Operating Partnership L.P.
$
16,192

 
$
16,727

 
 
 
 


See accompanying notes to the condensed consolidated financial statements.
8



 
Three months ended March 31,
 
2017
 
2016
Comprehensive income (loss):
 
 
 
Net income
$
16,142

 
$
16,805

Other comprehensive income:
 
 
 
Gain (loss) on cash flow hedging derivatives
1,078

 
(3,446
)
Comprehensive income
17,220

 
13,359

Less: Comprehensive income (loss) attributable to the noncontrolling interests
(50
)
 
78

Comprehensive income attributable to unitholders
$
17,270

 
$
13,281

 
 
 
 
Earnings per unit information:
  

 
 
Net income attributable to unitholders – basic and diluted
$
0.21

 
$
0.27

 
 
 
 
Distributions per unit
$
0.38

 
$
0.37

 
 
 
 
Weighted average units outstanding:
 
 
 
Weighted average units outstanding – basic
73,664

 
62,894

Weighted average units outstanding – diluted
73,775

 
62,963


 
 
 


See accompanying notes to the condensed consolidated financial statements.
9



EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND NONCONTROLLING INTERESTS
(Amounts in thousands, except units)
(Unaudited)
 
General Partner
 
Limited Partners
 
Accumulated Other Comprehensive Loss
 
Noncontrolling
Interests
 
Total
 
Units
 
Amount
 
Units
 
Amount
Balance, December 31, 2015
6,920

 
$
184

 
56,872,083

 
$
1,241,990

 
$
(5,475
)
 
$
8,171

 
$
1,244,870

Issuance of units in exchange for contributions of equity offering proceeds and redemption of units

 

 
8,130,670

 
287,045

 

 

 
287,045

Amortization of restricted stock and long-term incentive plan awards

 

 
1,989

 
357

 

 

 
357

Distributions

 
(3
)
 

 
(23,389
)


 

 
(23,392
)
Contributions from noncontrolling interests

 

 

 

 

 
3,571

 
3,571

Purchase of noncontrolling interests

 

 

 
(1,706
)
 

 
(2,409
)
 
(4,115
)
Adjustments to reflect redeemable noncontrolling interests at fair value

 

 

 
(722
)
 

 

 
(722
)
Comprehensive income (loss)

 
3

 

 
16,666

 
(3,446
)
 
(57
)
 
13,166

Balance, March 31, 2016
6,920

 
$
184

 
65,004,742

 
$
1,520,241

 
$
(8,921
)
 
$
9,276

 
$
1,520,780

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
6,920

 
$
178

 
73,068,535

 
$
1,803,405

 
$
(3,564
)
 
$
1,422

 
$
1,801,441

Issuance of units in exchange for contributions of equity offering proceeds and redemption of units

 

 
108,353

 
597

 

 

 
597

Amortization of long-term incentive plan awards

 

 
6

 
776

 

 

 
776

Surrender of shares to cover taxes on vesting of restricted shares

 

 
(3,283
)
 
(2,564
)
 

 

 
(2,564
)
Distributions

 
(3
)
 

 
(27,814
)
 

 

 
(27,817
)
Adjustments to reflect redeemable noncontrolling interests at fair value

 

 

 
238

 

 

 
238

Accretion of redeemable noncontrolling interests

 

 

 
(483
)
 

 

 
(483
)
Comprehensive income (loss)

 
2

 

 
16,155

 
1,078

 
(23
)
 
17,212

Balance, March 31, 2017
6,920

 
$
177

 
73,173,611


$
1,790,310


$
(2,486
)

$
1,399


$
1,789,400






See accompanying notes to the condensed consolidated financial statements.
10




EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Three months ended March 31,
 
2017
 
2016
Operating activities:
  
 
  
Net income
$
16,142

 
$
16,805

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
25,839

 
17,516

Deferred tax expense
725

 

Excess tax benefit related to the vesting of restricted stock
(1,610
)
 

Loss on disposal of assets

 
7

Gain on sale of collegiate housing properties

 
(11,873
)
Noncash rent expense related to the straight-line adjustment for long-term ground leases
1,175

 
1,187

Loss on extinguishment of debt
22

 
9,920

Amortization of deferred financing costs
421

 
480

Amortization of unamortized debt premiums

 
(49
)
Distributions of earnings from unconsolidated entities
177

 

Noncash compensation expense related to stock-based incentive awards
938

 
827

Equity in (earnings) losses of unconsolidated entities
(255
)
 
244

Change in fair value of contingent consideration
500

 

Change in operating assets and liabilities
1,541

 
2,486

Net cash provided by operating activities (net of acquisitions)
45,615

 
37,550

 
 
 
 
Investing activities:
  
 
  
Property acquisitions
(127,647
)
 
(24,357
)
Purchase of corporate assets
(316
)
 
(263
)
Restricted cash
124

 
854

Investment in collegiate housing properties
(2,861
)
 
(4,521
)
Proceeds from sale of collegiate housing properties

 
54,107

Collections on notes receivable

 
1,667

Earnest money deposits
(510
)
 
(735
)
Investment in assets under development
(97,358
)
 
(64,975
)
Distributions from unconsolidated entities
103

 
121

Net cash used in investing activities
(228,465
)
 
(38,102
)
 
 
 
 
Financing activities:
  
 
  
Payment of mortgage and construction loans
(32,950
)
 
(98,384
)
Borrowings under construction loans
146

 
12,444

Debt issuance costs
(493
)
 
(55
)
Debt extinguishment costs

 
(10,290
)
Borrowings on line of credit
240,000

 

Proceeds from issuance of common units in exchange for contributions

 
286,611

Payment of offering costs
(70
)
 
(307
)
Purchase and return of equity to noncontrolling interests

 
(7,025
)

See accompanying notes to the condensed consolidated financial statements.
11



 
Three months ended March 31,
 
2017
 
2016
Contributions from noncontrolling interests
7,131

 
3,571

Distributions paid on unvested restricted stock and long-term incentive plan awards
(116
)
 
(69
)
Distributions paid to unitholders
(27,701
)
 
(23,323
)
Distributions paid to noncontrolling interests
(87
)
 
(200
)
Repurchases of units for payments of restricted stock tax withholding
(2,563
)
 
(315
)
Net cash provided by financing activities
183,297

 
162,658

Net increase in cash and cash equivalents
447

 
162,106

Cash and cash equivalents, beginning of period
34,475

 
33,742

Cash and cash equivalents, end of period
$
34,922

 
$
195,848

 
 
 
 
Supplemental disclosure of cash flow information:
  
 
  
Interest paid, net of amounts capitalized
$

 
$
2,285

Income taxes paid
$
1

 
$
3

 
 
 
 
Supplemental disclosure of noncash activities:
  
 
  
Redemption of redeemable noncontrolling interests from unit holder to shares of common stock
$
1,138

 
$
938

Capital expenditures in accounts payable and accrued expenses related to developments
$
46,218

 
$
25,059




See accompanying notes to the condensed consolidated financial statements.
12



EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and description of business

Education Realty Trust, Inc. ("EdR" and collectively with its consolidated subsidiaries, the “Trust”) was organized in the state of Maryland on July 12, 2004 and commenced operations effective with the initial public offering that was completed on January 31, 2005. Through the Trust's controlling interest in both the sole general partner and the majority owning limited partner of Education Realty Operating Partnership L.P. ("EROP" and collectively with its consolidated subsidiaries, the "Operating Partnership"), the Trust is one of the largest developers, owners and managers of collegiate housing communities in the United States in terms of beds owned and under management. The Trust is a self-administered and self-managed REIT that is publicly traded on the New York Stock Exchange under the ticker symbol "EDR". Under the Articles of Incorporation, as amended, restated and supplemented, the Trust is authorized to issue up to 200 million shares of common stock and 50 million shares of preferred stock, each having a par value of $0.01 per share.

The sole general partner of EROP is Education Realty OP GP, Inc. (“OP GP”), an entity that is indirectly wholly-owned by EdR. As of March 31, 2017, OP GP held an ownership interest in EROP of less than 1%. The limited partners of EROP are Education Realty OP Limited Partner Trust, a wholly-owned subsidiary of EdR, and other limited partners consisting of current and former members of management. OP GP, as the sole general partner of EROP, has the responsibility and discretion in the management and control of EROP, and the limited partners of EROP, in such capacity, have no authority to transact business for, or participate in the management activities of EROP. Management operates the Trust and the Operating Partnership as one business. The management of the Trust consists of the same members as the management of the Operating Partnership. EdR consolidates the Operating Partnership for financial reporting purposes, and EdR does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Trust and the Operating Partnership are the same on their respective financial statements. Unless otherwise indicated, the accompanying Notes to the Condensed Consolidated Financial Statements apply to both the Trust and the Operating Partnership.

The Trust also provides real estate facility management, development and other advisory services through its taxable REIT subsidiaries ("TRS"), EDR Management Inc. (the “Management Company”), a Delaware corporation that performs collegiate housing management activities. EDR Development LLC (the “Development Company”), a Delaware limited liability company and wholly-owned subsidiary of the Management Company, which provides development consulting services for third-party collegiate housing communities, is a disregarded entity for federal income tax purposes and all assets owned and income earned by our Development Company are deemed to be owned and earned by our Management Company.
 
2. Summary of significant accounting policies

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States (“GAAP”). The accompanying condensed consolidated financial statements of the Trust represent the assets and liabilities and operating results of the Trust and its majority owned subsidiaries.

All intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

Principles of consolidation

The Trust evaluates its interest in partnerships, joint ventures and other similar entities under the variable interest entity (“VIE”) guidance. Under the VIE model, the Trust consolidates an entity when it has control to direct the activities of the VIE and where it is determined to be the primary beneficiary. If it is determined that the legal entity qualifies for a VIE scope exception or the legal entity is not subject to the VIE model, the voting interest model is applied. Under the voting interest model, the Trust consolidates an entity when it controls the entity through the ownership of a majority voting interest.


13


All of the Trust's property ownership, development and related business operations are conducted through the Operating Partnership. See the assets and liabilities of the Operating Partnership in the accompanying condensed consolidated financial statements.

Interim financial information

The accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the Trust's financial position, results of operations and cash flows for such periods. Because of the seasonal nature of the business, the operating results and cash flows are not necessarily indicative of results that may be expected for any other interim periods or for the full fiscal year. These financial statements should be read in conjunction with the Trust's consolidated financial statements and related notes included in the Trust's Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (the "SEC") on February 28, 2017.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Collegiate housing properties

Land, land improvements, buildings and improvements, and furniture, fixtures and equipment are recorded at cost. Buildings and improvements are depreciated over 15 to 40 years, land improvements are depreciated over 15 years and furniture, fixtures, and equipment are depreciated over 3 to 7 years. Depreciation is computed using the straight-line method for financial reporting purposes over the estimated useful life.

The Trust capitalizes interest based on the weighted average interest cost of the total debt and internal development costs while developments are ongoing as assets under development. When the property opens, these costs, along with other direct costs of the development, are transferred into the applicable asset category and depreciation commences.

Acquired collegiate housing communities’ results of operations are included in the Trust’s results of operations from the respective dates of acquisition. Appraisals, estimates of cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, land improvements, buildings and improvements, furniture, fixtures and equipment and identifiable intangibles, such as amounts related to in-place leases. Acquisition costs are expensed as incurred for acquisitions completed prior to the adoption of Accounting Standards Update ("ASU") 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business" ("ASU 2017-01") and are included in general and administrative expenses in the accompanying condensed consolidated statements of income and comprehensive income. The Trust adopted ASU 2017-01 prospectively on January 1, 2017. Acquisition costs have been capitalized for subsequent acquisitions that are not deemed to be business combinations.

Management assesses impairment of long-lived assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management uses an estimate of future undiscounted cash flows of the related asset based on its intended use to determine whether the carrying value is recoverable. If the Trust determines that the carrying value of an asset is not recoverable, the fair value of the asset is estimated and an impairment loss is recorded to the extent the carrying value exceeds estimated fair value. Management estimates fair value using discounted cash flow models, market appraisals if available, and other market participant data. During the three months ended March 31, 2017 and 2016, there were no impairment losses recognized.

When a collegiate housing community has met the criteria to be classified as held for sale, the fair value less cost to sell such asset is estimated. If the fair value less cost to sell the asset is less than the carrying amount of the asset, an impairment charge is recorded for the estimated loss. Depreciation expense is no longer recorded once a collegiate housing community has met the held for sale criteria. Dispositions that represent a strategic shift in the business will qualify for treatment as discontinued operations. The property disposition during the three months ended March 31, 2016 did not qualify for treatment as discontinued operations and, as a result, the operations of the property are included in continuing operations in the accompanying condensed consolidated statements of income and comprehensive income.


14


During August 2016, the Trust committed and finalized plans to demolish and redevelop Players Club, an off-campus community that serves Florida State University. Depreciation estimates were revised to reflect the shortened remaining useful life. The Trust recorded $1.7 million of accelerated depreciation during the three months ended March 31, 2017 related to the change in estimate. The impact on net income attributable to EdR common stockholders per share - basic and diluted for the three months ending March 31, 2017 is $0.02. The Trust estimates recording accelerated depreciation of $1.3 million in the three months ending June 30, 2017.

Redeemable noncontrolling interests (the Trust) / redeemable limited partners (EROP)

The Trust follows the guidance issued by the Financial Accounting Standards Board ("FASB") regarding the classification and measurement of redeemable securities. The Trust classifies redeemable noncontrolling interests, which include redeemable interests in consolidated joint ventures with puts exercisable by the joint venture partners and units of limited partnership interest in University Towers Operating Partnership, LP and in the Operating Partnership in the mezzanine section of the accompanying condensed consolidated balance sheets.

The Trust accounts for certain noncontrolling interests with embedded put and call features with fixed exercise prices and exercise dates as a financing arrangement, and these amounts are recorded as accrued liabilities in the accompanying condensed consolidated balance sheets. The liability is initially measured at present value of the fixed price settlement amount. Subsequently, the liability is accreted to the fixed price over the term of the contract, with the resulting expense recognized as interest expense.

The Trust also has certain noncontrolling interests with put options at substantially fixed prices. These noncontrolling interests are accounted for as noncontrolling interests redeemable at other than fair value. The Trust accounts for the change in redemption value through the use of an accretion model from the date of inception to the expected redemption date. Changes in redemption value are recorded in equity, either through retained earnings or additional paid-in capital (absent any retained earnings). The impact of the changes in redemption value (accretion) is included in earnings per share using the two-class method.  

In the accompanying condensed consolidated balance sheets of the Operating Partnership, the redeemable units of limited partnership in the Operating Partnership are classified as redeemable limited partners, and the redeemable interests in consolidated joint ventures with puts exercisable by the joint venture partners and units of limited partnership interest in University Towers Operating Partnership, LP are classified as redeemable noncontrolling interests. The redeemable noncontrolling interest units / redeemable limited partner units are adjusted to the greater of carrying value or fair market value based on the price per share of EdR's common stock or redemption value at the end of each respective reporting period.

Common stock issuances and offering costs

Specific incremental costs directly attributable to the issuance of EdR common stock are charged against the gross proceeds of the related issuance. Accordingly, underwriting commissions and other stock issuance costs are reflected as a reduction of additional paid-in capital in the accompanying condensed consolidated statements of changes in equity.

The Trust is structured as an umbrella partnership REIT ("UPREIT") and contributes all proceeds from its various equity offerings to EROP. For every one share of common stock offered and sold by EdR for cash, EdR must contribute the net proceeds to EROP and, in return, EROP will issue one OP Unit to EdR.

Income taxes

EdR qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). EdR is generally not subject to federal, state and local income taxes on any of its taxable income that it distributes if it distributes at least 90% of its REIT taxable income for each tax year to its stockholders and meets certain other requirements. If EdR fails to qualify as a REIT for any taxable year, EdR will be subject to federal, state and local income taxes (including any applicable alternative minimum tax) on its taxable income.

The Trust has elected to treat certain of its subsidiaries, including the Management Company, as TRSs. A TRS is subject to federal, state and local income taxes. The Management Company provides management services and through the Development Company, provides development services, which if directly provided by the Trust would jeopardize EdR’s REIT status. Deferred tax assets and liabilities 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.

15



The Trust had $0.9 million of unrecognized tax benefits as of March 31, 2017. There was no unrecognized tax benefits as of December 31, 2016. The Trust and its subsidiaries file federal and state income tax returns. As of March 31, 2017, open tax years generally included tax years for 2013, 2014, 2015 and 2016. The Trust’s policy is to include interest and penalties related to unrecognized tax benefits in general and administrative expenses. For each of the three months ended March 31, 2017 and 2016, the Trust had no interest or penalties recorded related to unrecognized tax benefits.

Goodwill and other intangible assets

Goodwill is tested annually for impairment as of December 31, and is tested for impairment more frequently if events and circumstances indicate that the carrying value of the assets might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The accumulated impairment loss recorded is $0.4 million. No additional impairment has been recorded through March 31, 2017. The carrying value of goodwill was $3.1 million as of March 31, 2017 and December 31, 2016, of which $2.1 million was recorded on the management services segment and $0.9 million was recorded on the development consulting services segment. Goodwill is not subject to amortization.

Other intangible assets generally include in-place leases acquired in connection with acquisitions of collegiate housing properties. As of March 31, 2017 and December 31, 2016, in-place leases total $12.2 million and $7.4 million, respectively, and are being amortized over the life of the remaining lease term, which is generally less than one year. Amortization expense totaled $3.4 million and $0.1 million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and December 31, 2016, accumulated amortization totaled $7.0 million and $3.6 million, respectively. The carrying value of other intangible assets was $5.2 million and $3.8 million as of March 31, 2017 and December 31, 2016, respectively.

Investment in unconsolidated entities

The Trust accounts for its investments in unconsolidated joint ventures using the equity method whereby the costs of an investment are adjusted for the Trust’s share of earnings of the respective investment reduced by distributions received. The earnings and distributions of the unconsolidated joint ventures are allocated based on each owner’s respective ownership interests. These investments are classified as other assets or accrued expenses, depending on whether the distributions exceed the Trust’s contributions and share of earnings in the joint ventures, in the accompanying condensed consolidated balance sheets (see Note 5).

Earnings per share

Earnings per Share - The Trust

Basic earnings per share is calculated by dividing net income available to common stockholders after accretion of redeemable noncontrolling interests by weighted average shares of common stock outstanding, including outstanding units in the Operating Partnership designated as LTIP Units ("LTIP Units"). Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of potentially dilutive securities and the shares issuable upon settlement of the Forward Agreements using the treasury stock method. The Trust follows the authoritative guidance regarding the determination of whether certain instruments are participating securities. All unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are included in the computation of earnings per share under the two-class method. This results in shares of unvested restricted stock and LTIP Units being included in the computation of basic earnings per share for all periods presented. When noncontrolling interests are redeemable at other than fair value, increases or decreases in the carrying amount of the redeemable noncontrolling interests are reflected in earnings per share using the two-class method.

Earnings per OP Unit - EROP

Basic earnings per unit is calculated by dividing net income available to unitholders after accretion of redeemable noncontrolling interests by the weighted average number of OP Units and LTIP Units outstanding. Diluted earnings per unit is calculated similarly, except that it includes the dilutive effect of the assumed exercise of potentially dilutive securities and the shares issuable upon settlement of the Forward Agreements using the treasury stock method. EROP follows the authoritative guidance regarding the determination of whether certain instruments are participating securities.

Recent accounting pronouncements

In January 2017, the FASB issued ASU 2017-01. The ASU is intended to provide a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the new guidance, companies

16


are required to utilize an initial screening test to determine whether substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set is not a business. The Trust adopted this guidance effective January 1, 2017 on a prospective basis. The adoption resulted in treatment of the first quarter 2017 acquisitions as asset acquisitions, rather than business combinations, and capitalization of acquisition costs. It is expected that going forward, acquisitions of collegiate housing properties will be treated as asset acquisitions.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" ("ASU 2016-18"). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows, and transfers between cash and cash equivalents and restricted cash are no longer presented within the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Trust anticipates retrospectively adopting this guidance on January 1, 2018. The Trust's initial analysis indicates the adoption of this ASU will result in the change in restricted cash to no longer be presented in the statement of cash flows as an investing cash flow.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"). ASU 2016-15 addresses eight specific cash flow issues and intends to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows and will be applied retrospectively. This guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted. The Trust adopted ASU 2016-15 effective January 1, 2017. As a result of this adoption, there was no impact to the condensed consolidated statements of cash flows for either period presented.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), which requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years, on a modified prospective basis. The Trust's primary revenue is collegiate housing rental income; as such, the Trust is a lessor on a significant number of leases. The Trust is continuing to evaluate the potential impact of the ASU and believes it will continue to account for its leases in substantially the same manner due to the short-term nature (less than 12 months) of the leases. The most significant change for the Trust relates to ground lease agreements, which could result in recording the right-of-use asset and related liability on the balance sheet. The Trust plans to adopt ASU 2016-02 effective January 1, 2019 and is continuing to evaluate and quantify the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), as amended by ASU 2015-04 to defer the effective date. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including the guidance on real estate derecognition for most transactions. ASU 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years and permits the use of either the retrospective or cumulative effect transition method. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. Since the issuance of ASU 2014-09, the FASB has issued ASU 2016-08 that is intended to improve the understandability of the implementation guidance regarding principal versus agent considerations and has issued ASU 2016-10 to clarify the identification of performance obligations and the implementation guidance related to licensing. The effective dates of these amendments are the same as ASU 2014-09. The Trust's initial analysis of its non-lease related revenue contracts indicates the adoption of this ASU will not have a material effect on the consolidated financial statements; however, the Trust is still in the process of evaluating this ASU.


17


3. Acquisition and development of real estate investments

Acquisition of collegiate housing properties

2017 Acquisitions

During the three months ended March 31, 2017, the Trust completed the following two collegiate housing property acquisitions, which were determined to be asset acquisitions under ASU 2017-01:
Name
 
Primary University Served
 
Acquisition Date
 
# of Beds
 
# of Units
 
Contract Price (in thousands)
Retreat at Corvallis
 
Oregon State University,
Oregon
 
January 2017
 
1,016

 
330

 
$
99,450

319 Bragg
 
Auburn University,
Alabama
 
February 2017
 
305

 
86

 
$
28,500


Below is the allocation of the purchase price as of the date of the acquisition (in thousands):
 
 
Retreat at Corvallis
 
319 Bragg
 
Total
Collegiate housing property
 
$
95,785

 
$
27,475

 
$
123,260

In-place leases
 
3,780

 
1,055

 
4,835

Other assets
 
617

 
2

 
619

Current liabilities
 
(936
)
 
(131
)
 
(1,067
)
Total net assets acquired
 
$
99,246

 
$
28,401

 
$
127,647


The $0.3 million difference between the aggregate contracted price of $128.0 million and the net assets set forth in the table above represents working capital and other liabilities that were not part of the contractual purchase price, but were acquired.

2016 Acquisitions

During the year ended December 31, 2016, the Trust completed the following five collegiate housing property acquisitions:
Name
 
Primary University Served
 
Acquisition
Date
 
# of Beds
 
# of Units
 
Contract Price (in thousands)
Lokal
 
Colorado State University, Colorado
 
March 2016
 
194
 
79
 
$
24,600

The Hub at Madison
 
University of Wisconsin, Wisconsin
 
May 2016
 
1,038
 
341
 
$
188,500

Pura Vida Place
 
Colorado State University, Colorado
 
August 2016
 
100
 
52
 
$
12,000

Carriage House
 
Colorado State University, Colorado
 
August 2016
 
94
 
54
 
$
12,000

Urbane
 
University of Arizona, Arizona
 
September 2016
 
311
 
104
 
$
50,000


These acquisitions were accounted for as business combinations as they occurred prior to the adoption of ASU 2017-01.

18



Below is the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):
 
 
Lokal
 
The Hub at Madison
 
Pura Vida Place
 
Carriage House
 
Urbane
 
Total
Collegiate housing property
 
23,653

 
189,832

 
11,498

 
11,528

 
47,999

 
$
284,510

In-place leases
 
849

 
3,588

 
502

 
472

 
1,984

 
7,395

Other assets
 
3

 
87

 
5

 
4

 
18

 
117

Current liabilities
 
(148
)
 
(7,442
)
 
(144
)
 
(67
)
 
(584
)
 
(8,385
)
Total net assets acquired
 
$
24,357

 
$
186,065

 
$
11,861

 
$
11,937

 
$
49,417

 
$
283,637


The $3.5 million difference between the contracted price of $287.1 million and the net assets set forth in the table above includes contingent consideration related to the acquisition of The Hub at Madison, which was initially estimated at $5.3 million and represents additional purchase price related to future operating performance of the applicable property and future tax assessments. Of this amount, $3.1 million was paid out during 2016. As of March 31, 2017 and December 31, 2016, $2.3 million was estimated and recorded as a contingent consideration liability, based upon probability of achieving certain operating performance metrics. The estimated range of possible outcomes is between $0.0 million and $4.5 million. The remaining difference between the contracted price and the net assets set forth above represents working capital and other liabilities that were not part of the contractual purchase price, but were acquired.

In connection with the acquisition of Urbane, the Trust formed a limited liability company to acquire an interest in the legal entity owning the collegiate housing property. In addition to the $10.0 million capital contribution, the Trust advanced $23.6 million to the seller. Under the terms of the agreement, the Trust has a call exercisable on September 8, 2017 to acquire the remaining ownership interest from the seller and the seller similarly has a put to sell their interests to the Trust. The exercise price is substantially fixed and the exercise dates are within one month of each other. The Trust evaluated the LLC as a VIE and determined it was the primary beneficiary because it directs the activities that most significantly impact the economic performance of the entity. Therefore, the Trust has consolidated the VIE since the date of acquisition. The put and call arrangement was evaluated and it was determined the noncontrolling interests represent a liability because of the substantially fixed exercise prices and stated exercise dates and, therefore, the economic substance is a financing arrangement. The Trust has recorded the liability at the present value of the fixed price settlement amount ($14.9 million reflected in accounts payable and accrued expenses) and will accrete the liability to the fixed price over the contractual term. The amount recorded at March 31, 2017 and December 31, 2016 approximates the redemption or settlement amount due to the short term of the contractual period. No earnings have been attributed to noncontrolling interests in the accompanying condensed consolidated statement of net income and comprehensive income.

The Trust is also obligated to pay the seller contingent consideration of up to $1.5 million if certain performance conditions are met for the 2017/2018 lease year. Conversely, if the operating performance of the property does not achieve certain performance metrics, the seller is required to reimburse the Trust for up to $1.5 million of the purchase price. Based on the assessment of the probability of achieving the performance metrics as of the acquisition date, no contingent consideration was initially recorded at the acquisition date. As of March 31, 2017 and December 31, 2016, $1.5 million and $1.0 million, respectively, were estimated and recorded as a contingent consideration liability, based upon probability of achieving certain operating performance metrics.


19


The unaudited pro forma information had the acquisition date for the 2016 acquisitions been January 1, 2015 is as follows and is not necessarily indicative of results that would have occurred or which may occur (in thousands, except per share and per unit amounts):
 
 
Three months ended March 31,
 
 
2016 (1)
 
2015 (2)
Total revenue attributable to the Trust and EROP(1)
 
$
76,758

 
$
64,382

Net income attributable to the Trust(1)
 
$
17,190

 
$
6,862

Net income per share attributable to common shareholders - basic and diluted
 
$
0.27

 
$
0.14

 
 
 
 
 
Net income attributable to EROP(1)
 
$
17,251

 
$
6,901

Net income per unit attributable to unitholders - basic and diluted
 
$
0.27

 
$
0.14

(1) As Urbane first opened for the 2016/2017 lease year (September 2016), supplemental pro forma revenue and net income information is not included for either period presented above.
(2) As the Lokal, the Hub at Madison and Carriage House first opened for the 2015/2016 lease year (August 2015), supplemental pro forma revenue and net income information is not included for the period January 1, 2015 - March 31, 2015.

For the three months ended March 31, 2016, actual revenue and net income from the 2016 property acquisitions included in the accompanying condensed consolidated statements of income and comprehensive income since the respective dates of acquisition is $4.5 thousand and $3.5 thousand, respectively.

Development of collegiate housing properties

During 2016, the Trust completed the development of the following communities, all of which opened for the 2016/2017 lease year. The costs incurred to date for the Trust's owned communities represent the balance capitalized in collegiate housing properties, net as of December 31, 2016 (dollars in thousands):
Name
 
Primary University Served
 
Bed Count
 
Costs Incurred as of December 31, 2016
 
Internal Development Costs Capitalized
 
Interest Costs Capitalized
 
 
 
Three months ended March 31, 2016
Holmes Hall and Boyd Hall
 
University of Kentucky
 
1,141

 
$
85,691

 
$
83

 
$
633

Retreat at Blacksburg - Phase I & II
 
Virginia Tech
 
829

 
64,549

 
32

 
208

Retreat at Oxford - Phase II
 
University of Mississippi
 
350

 
26,745

 
21

 
195

Total
 
 
 
2,320

 
$
176,985

 
$
136

 
$
1,036



20


The following represents a summary of active developments as of March 31, 2017, including internal development costs and interest costs capitalized (dollars in thousands):
Name
 
Primary University Served
 
Bed Count
 
Costs Incurred as of March 31, 2017
 
Internal Development Costs Capitalized
 
Interest Costs Capitalized
 
Internal Development Costs Capitalized
 
Interest Costs Capitalized
 
 
 
 
Three months ended March 31, 2017
 
Three months ended March 31, 2016
University Flats
 
University of Kentucky
 
771

 
$
65,490

 
$
8

 
$
638

 
$
60

 
$
117

Lewis Hall
 
University of Kentucky
 
346

 
23,304

 
108

 
173

 
71

 
2

Boise State University
 
Boise State University
 
656

 
28,345

 
56

 
217

 
52

 
9

SkyVue
 
Michigan State University
 
824

 
73,277

 
39

 
655

 
85

 
132

The Local: Downtown
 
Texas State University
 
304

 
23,712

 
31

 
161

 
74

 
83

Avid Square
 
Oklahoma State University
 
475

 
29,107

 
37

 
205

 

 

The Woods
 
Northern Michigan University
 
1,200

 
22,991

 
78

 
146

 

 

Maplewood
 
Cornell University
 
872

 
4,604

 
124

 
32

 

 

University of Pittsburgh
 
University of Pittsburgh
 
723

 
26,986

 
25

 
178

 

 

Players Club Redevelopment
 
Florida State University
 
592

 
977

 
13

 
10

 

 

Hale Mahana
 
University of Hawai'i
 
599

 
27,379

 
39

 
262

 

 

Hub at Minneapolis
 
University of Minnesota
 
707

 
19,104

 
18

 
20

 

 

Arizona State University
 
Arizona State University
 
857

 
36,491

 
58

 
260

 

 

Iowa State University
 
Iowa State University
 
537

 
10,382

 
38

 
10

 

 

Colorado State University
 
Colorado State University
 
229

 
2,757

 
22

 
22

 

 

Total active projects under development
 
9,692

 
$
394,906

 
$
694

 
$
2,989

 
$
342

 
$
343


As of March 31, 2017, the Trust is contractually obligated to fund remaining amounts under guaranteed maximum price contracts with the general contractor of approximately $467.4 million to complete these developments.

All costs related to the development of collegiate housing communities are classified as assets under development in the accompanying condensed consolidated balance sheets until the community is completed and opened.

4. Disposition of real estate investments

During the three months ended March 31, 2016, the 605 West collegiate housing community located in Durham, North Carolina was sold for a gross sales price of approximately $54.6 million. The Trust received net proceeds of approximately $54.1 million after deducting the closing costs and recognized a $11.9 million gain on this disposition. Prior to the sale, the Trust acquired its joint venture partner's interest for $2.1 million. The net income attributable to this property is included in the continuing operations in the accompanying condensed consolidated statements of income and comprehensive income through the date of disposition.

5. Investments in unconsolidated entities

As of March 31, 2017 and December 31, 2016, the Trust had investments in the following unconsolidated joint ventures (see Note 2), all of which are accounted for under the equity method:

a 50% interest in 1313 5th Street MN Holdings, LLC, a Delaware limited liability company, which owns the collegiate housing property referred to as The Marshall at the University of Minnesota;
a 50% interest in West Clayton Athens GA Owner, LLC, a Delaware limited liability company, which owns the collegiate housing property referred to as Georgia Heights at the University of Georgia;

21


a 25% interest in University Village-Greensboro LLC, a Delaware limited liability company, which owns the collegiate housing property referred to as University Village - Greensboro; and
a 14% interest in Elauwit Networks, a South Carolina limited liability company.

The Trust participates in major operating decisions of, but does not control, these entities; therefore, the equity method is used to account for these investments.

The following is a summary of the results of operations related to the unconsolidated joint ventures for the three months ended March 31, 2017 and 2016 (unaudited, in thousands):
Results of Operations of Unconsolidated Entities:
For the three months ended March 31,
2017
 
2016
Revenues
$
5,609

 
$
7,415

Net income (1)
$
455

 
$
14

Equity in earnings (losses) of unconsolidated entities
$
255

 
$
(244
)
(1) Net income for the period ended March 31, 2017 equals income from continuing operations.

As of March 31, 2017 and December 31, 2016, the Trust had $26.9 million and $27.0 million, respectively, of investments in unconsolidated entities classified in other assets in the accompanying condensed consolidated balance sheets. As of March 31, 2017 and December 31, 2016, liabilities are recorded totaling $1.9 million at each date related to investments in unconsolidated entities where distributions exceeded contributions and equity in earnings and the Trust has historically provided financial support; therefore, these investments are classified in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets (see Note 2).

6. Debt

Revolving credit facility

On November 19, 2014, the Operating Partnership entered into a Fifth Amended and Restated Credit Agreement (the “Fifth Amended Revolver”). The Fifth Amended Revolver has a maximum availability of $500.0 million and an accordion feature to $1.0 billion, which may be exercised during the first four years subject to satisfaction of certain conditions. The Fifth Amended Revolver is scheduled to mature on November 19, 2018 with a one-year extension option, provided that certain conditions are met.
EdR serves as the guarantor for any funds borrowed by the Operating Partnership under the Fifth Amended Revolver. The interest rate per annum applicable to the Fifth Amended Revolver is, at the Operating Partnership’s option, equal to a base rate or the London InterBank Offered Rate ("LIBOR") plus an applicable margin based upon our leverage. As of March 31, 2017, the interest rate applicable to the Fifth Amended Revolver was 2.23%. If amounts are drawn, due to the fact that the Fifth Amended Revolver bears interest at variable rates, cost approximates the fair value. In addition, the Operating Partnership also incurs an unused fee equal to either 0.15% or 0.25% of the unused balance, based on outstanding commitments. As of March 31, 2017, the outstanding balance under the Fifth Amended Revolver was $260.0 million; thus, the Trust's remaining availability was $240.0 million at March 31, 2017.

The Fifth Amended Revolver contains customary affirmative and negative covenants and contains financial covenants that, among other things, require the maintenance of certain minimum ratios of EBITDA (earnings before payment or charges of interest, taxes, depreciation, amortization or extraordinary items) as compared to interest expense and total fixed charges. The financial covenants also include consolidated net worth and leverage ratio tests, and distributions are prohibited in excess of 95% of funds from operations ("FFO") except to comply with the legal requirements to maintain REIT status. As of March 31, 2017, the Operating Partnership was in compliance with all covenants under the Fifth Amended Revolver.


22


Unsecured term loan facility

On November 19, 2014, the Operating Partnership and certain subsidiaries entered into an amended and restated unsecured term loan facility under a Credit Agreement (the "First Amended and Restated Credit Agreement"). Under the First Amended and Restated Credit Agreement, the unsecured term loans have an aggregate principal amount of $187.5 million, consisting of a $122.5 million Tranche A term loan with a seven-year maturity (the “Tranche A Term Loan”) and a $65.0 million Tranche B term loan with a five-year maturity (the “Tranche B Term Loan” and, together with the Tranche A Term Loan, the “Term Loans”). The Tranche A Term Loan matures on January 13, 2021 and the Tranche B Term Loan matures on January 13, 2019. The First Amended and Restated Credit Agreement contains an accordion feature pursuant to which the Borrowers may request that the total aggregate amount of the Term Loans be increased to $250.0 million, which may be allocated to Tranche A or Tranche B, subject to certain conditions, including obtaining commitments from any one or more lenders to provide such additional commitments.

The interest rate per annum on the Tranche A Term Loan is, at the Operating Partnership’s option, equal to a base rate or LIBOR plus an applicable margin ranging from 155 to 225 basis points. The interest rate per annum on the Tranche B Term Loan is, at the Operating Partnership’s option, equal to a base rate or LIBOR plus an applicable margin ranging from 120 to 190 basis points. The applicable margin for the Term Loans is based on leverage. At March 31, 2017 and December 31, 2016, the aggregate outstanding balance under the Term Loans was $186.3 million and $186.7 million, respectively, which is presented net of unamortized deferred financing costs of $1.2 million and $0.8 million, respectively, in the accompanying condensed consolidated balance sheets.

The First Amended and Restated Credit Agreement contains customary affirmative and restrictive covenants substantially similar to those contained in the Fifth Amended Revolver. EdR serves as the guarantor for any funds borrowed under the First Amended and Restated Credit Agreement. As of March 31, 2017, the Operating Partnership was in compliance with all covenants of the First Amended and Restated Credit Agreement.

In connection with entering into the First Amended and Restated Credit Agreement, the Operating Partnership entered into multiple interest rate swaps with notional amounts totaling $187.5 million to hedge the interest payments on the LIBOR-based Term Loans (see Note 11).

On January 18, 2017, the Operating Partnership entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement amends and restates the First Amended and Restated Credit Agreement (i) to lower the interest rate on the $122.5 million Tranche A Term Loan to LIBOR plus a margin range of 120 basis points to 190 basis points, and (ii) to extend the maturity of the $65 million Tranche B Term Loan to January 18, 2022. The provisions of the Second Amended and Restated Credit Agreement are otherwise identical to the provisions of the First Amended and Restated Credit Agreement. The Trust also entered into a forward starting interest rate swap concurrently with the extension of the Tranche B Term Loan (see Note 11).

As of March 31, 2017, the effective interest rate on the Tranche A Term Loan was 3.50% (weighted average swap rate of 2.30% plus the current margin of 1.20%) and the effective interest rate on the Tranche B Term Loan was 2.86% (weighted average swap rate of 1.66% plus the current margin of 1.20%).

Unsecured senior notes

On November 24, 2014, the Operating Partnership completed the public offering of $250.0 million aggregate principal amount of unsecured senior notes (the "Unsecured Senior Notes") under an existing shelf registration statement. The 10-year Unsecured Senior Notes were issued at 99.991% of par value with a coupon of 4.6% per annum and are fully and unconditionally guaranteed by EdR. Interest on the Unsecured Senior Notes is payable semi-annually on June 1 and December 1 of each year. The Unsecured Senior Notes will mature on December 1, 2024. At March 31, 2017 and December 31, 2016, the outstanding balance under the Unsecured Senior Notes was $248.0 million and $247.9 million, respectively, which is presented net of unamortized deferred financing costs of $2.0 million and $2.1 million, respectively, in the accompanying condensed consolidated balance sheets. The terms of Unsecured Senior Notes contain certain covenants that restrict the ability of EdR and the Operating Partnership to incur additional secured and unsecured indebtedness. In addition, the Operating Partnership must maintain a minimum ratio of unencumbered asset value to unsecured debt, as well as a minimum interest coverage level. As of March 31, 2017, the Operating Partnership was in compliance with all covenants.


23


Mortgage and construction debt

As of March 31, 2017 and December 31, 2016, mortgage and construction notes payable consist of the following, which were secured by the underlying collegiate housing properties (dollars in thousands):
 
 
Outstanding Balance at
 
 
 
 
 
 
 
Property
 
March 31, 2017
 
December 31, 2016
 
Interest Rate at March 31, 2017
 
Interest Rate Type
 
Maturity Date
 
University Towers
 

 
32,950

 
n/a


Variable
 
7/1/2017

     Mortgage Debt
 

 
32,950

 
n/a


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Oaks on the Square - Phase IV
 
29,776

 
29,626

 
2.79
%
 
Variable
 
10/20/2017
 
     Construction Loans
 
29,776

 
29,626

 
2.79
%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total mortgage and construction debt / weighted average rate
 
29,776

 
62,576

 
2.79
%

 
 
  
 
Unamortized deferred financing costs
 

 
(56
)
 
 
 
 
 
 
 
Total net of unamortized deferred financing costs
 
29,776

 
62,520

 
  

 
 
 
  
 
Less current portion, net of unamortized deferred financing costs
 
(29,776
)
 
(62,520
)
 
 
 
 
 
 
 
Total mortgage and construction debt, net of current portion
 
$

 
$

 
 
 
 
 
 
 

Mortgage debt and construction loans

During the three months ended March 31, 2017, the Operating Partnership repaid in full the variable-rate mortgage debt secured by the University Towers collegiate housing property with a principal balance of $33.0 million. The interest rate was 2.9% per annum and the mortgaged debt was scheduled to mature on July 1, 2017.

The construction loan secured by the Oaks of the Square Phase IV contains customary financial covenants, such as minimum debt service ratios. As of March 31, 2017, the Operating Partnership was in compliance with all covenants.

The following table reconciles the carrying amount of mortgage and construction notes payable, net of unamortized deferred financing costs, for the three months ended March 31, 2017 and the year ended December 31, 2016 (in thousands):
 
March 31, 2017
 
December 31, 2016
Balance, beginning of period
$
62,520

 
$
204,511

Additions to principal
146

 
40,974

Repayments of principal
(32,950
)
 
(183,862
)
Amortization of debt premium

 
(49
)
Write-off of debt premium related to debt pay off

 
(523
)
(Increase) decrease in deferred financing costs, net
60

 
1,469

Balance, end of period
$
29,776

 
$
62,520



24


The scheduled maturities of outstanding indebtedness as of March 31, 2017 are as follows (in thousands):
Year
2017 (nine months ending December 31, 2017)
$
29,776

2018
260,000

2019

2020

2021
122,500

2022
65,000

Thereafter
250,000

Total
727,276

Unamortized deferred financing costs
(3,178
)
Outstanding as of March 31, 2017, net of unamortized deferred financing costs
$
724,098


7. Commitments and contingencies

For its third-party development projects, the Trust commonly provides alternate housing and project cost guarantees, subject to certain conditions. Alternate housing guarantees generally require the university to provide on-campus housing or the Trust to provide substitute living quarters and transportation for students to and from the university if the project is not complete by an agreed-upon date. Under project cost guarantees, the Trust is responsible for the construction costs of a project in excess of an approved budget. The budget consists primarily of costs included in the general contractors’ guaranteed maximum price contract (“GMP”). In most cases, the GMP obligates the general contractor, subject to force majeure and approved change orders, to provide completion date guarantees and to cover cost overruns and liquidated damages. In addition, the GMP is typically secured with payment and performance bonds.

The Operating Partnership and various joint venture partners have jointly and severally guaranteed partial repayment on third-party mortgage and construction debt secured by the following underlying collegiate housing properties, all of which are unconsolidated joint ventures. The Operating Partnership is liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt. Pursuant to the respective operating agreements, the joint venture partners agreed to indemnify, defend and hold harmless the Trust with respect to such obligations, except to the extent such obligations were caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates. Therefore, exposure under the guaranties for obligations not caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates are not expected to exceed the Operating Partnership's proportionate interest in the related mortgage debt in the case of the non-recourse, carve-out guaranty, or in the Operating Partnership's proportionate interest in the partial repayment guaranty, as applicable.

The following summarizes the Operating Partnership's exposure under such guaranties (dollars in thousands):
 
 
 
 
March 31, 2017
 
December 31, 2016
 
 
 
 
Joint Venture Balance
 
Operating Partnership's Proportionate Interest
 
Joint Venture Balance
 
Operating Partnership's Proportionate Interest
 
 
Ownership Percent
 
Loan Balance
 
Partial Repayment Guarantee
 
Loan Balance
 
Partial Repayment Guarantee
 
Loan Balance