Debt

6 Months Ended

Jun. 30, 2011

9. Debt

A detail of our mortgage loans, construction loans and lines of credit is presented below (amounts in thousands):


	June 30,		December 31,
	2011		2010
Fixed-rate mortgage loans	$	60,840		60,840
Construction loans		11,724		—
Lines of credit		74,500		42,500

	$	147,064		103,340

During the six months ended June 30, 2011 and 2010, the following transactions occurred (amounts in thousands):


	Six Months Ended
	June 30,
	2011		2010
Balance at beginning of period	$	103,340		343,172
Additions:
Draws on lines of credit		32,000		40
Draws under construction loans		11,724		497
Proceeds from related party loan ⁽¹⁾		—		2,250
Accretion of interest expense ⁽¹⁾		—		1,376
Deductions:
Payments on construction loans		—		(225	)
Payments on related party loan		—		(47	)


Balance at end of period	$	147,064		347,063


(1)		Relates to sale of 90% of our interest in Campus Crest at Milledgeville, LLC, and sale of 99% of our interest in HSRE I. See note 7.

The estimated fair value of our fixed rate mortgage loans at June 30, 2011 and December 31, 2010 was approximately $74.3 million and approximately $62.9 million, respectively. Estimated fair values are determined by comparing current borrowing rates and risk spreads to the stated interest rates and risk spreads. The estimated fair value of our revolving line of credit approximates the outstanding balance due to the frequent market based repricing of the underlying variable rate index.

Mortgage and construction loans are collateralized by properties and their related revenue streams. Mortgage and construction loans at June 30, 2011 and December 31, 2010 consisted of the following (dollar amounts in thousands):


			Principal		Principal		Stated			Interest			Interest
	Face		Outstanding at		Outstanding		Interest			Rate At			Rate at			Maturity
	Amount		June 30, 2011		December 31, 2010		Rate			June 30, 2011			December 31, 2010			Date		Amortization
Mortgage loans

The Grove at Asheville	$	14,800		14,800		14,800		5.77	%		5.77	%		5.77	%		4/11/17	30 years
The Grove at Carrollton		14,650		14,650		14,650		6.13	%		6.13	%		6.13	%		10/11/16	30 years
The Grove at Las Cruces		15,140		15,140		15,140		6.13	%		6.13	%		6.13	%		10/11/16	30 years
The Grove at Milledgeville		16,250		16,250		16,250		6.12	%		6.12	%		6.12	%		10/1/16	30 years

Construction loans

Construction loan (three properties) ⁽¹⁾		52,751		7,332		—	LIBOR + 4.75%				4.94	%		N/A			11/19/13	Interest only through 11/2012
The Grove at Columbia		17,046		4,392		—	Greater of LIBOR + 3.00% or 4.50%				4.50	%		N/A			3/4/14	Interest only through 4/2013
The Grove at Orono		15,206		—		—	LIBOR + 2.75%				N/A			N/A			6/30/14	Interest only

Total	$	145,843		72,564		60,840


(1)		Secured by The Grove at Ames, The Grove Clarksville and The Grove at Fort Wayne. At June 30, 2011, approximately $3.1 million of the loan balance was hedged with a floating to fixed interest rate swap, which when taken together with the loan interest, fixed this portion of the loan’s interest rate at 6.14%.

Mortgage Loans

The loans for The Grove at Asheville, The Grove at Carrollton, The Grove at Las Cruces and The Grove at Milledgeville generally require interest only payments, plus certain reserves and escrows, that are payable monthly for a period of five years. Monthly payments of principal and interest, plus certain reserve and escrow amounts, are due thereafter until maturity when all principal is due. Each of these loans has a 30-year amortization and is a non-recourse obligation subject to customary exceptions. None of these loans are cross-defaulted or cross-collateralized with any other indebtedness. The loans generally may not be prepaid prior to maturity; in certain cases, prepayment is allowed, subject to prepayment penalties.

During the three and six months ended June 30, 2010, the Predecessor was party to an additional mortgage loan which was outstanding. This loan had a principal amount of approximately $104.0 million, was secured by six properties, had a fixed interest rate of 6.40% and had interest only payments with a balloon maturity date of February 28, 2013. This mortgage loan was repaid in full on October 19, 2010, upon completion of the Offering.

Construction Loans

On July 22, 2011, Campus Crest at Auburn, LLC, a subsidiary of the Company, entered into a Construction Loan Agreement with Compass Bank pursuant to which Compass Bank agreed to provide Campus Crest at Auburn, LLC a construction loan with a total borrowing capacity of approximately $16.3 million. The construction loan will be used to finance the development of a student housing property in Auburn, Alabama. The construction loan matures on July 22, 2014, but can be extended until October 22, 2015, subject to certain conditions. The interest rate on the construction loan is LIBOR plus 2.95%. The construction loan agreement contains representations, warranties, covenants (including financial covenants upon commencement of operations) and other terms that are customary for construction financing.

On June 30, 2011, Campus Crest at Orono, LLC, a subsidiary of the Company, entered into a Construction Loan Agreement with TD Bank, N.A. pursuant to which TD Bank agreed to provide Campus Crest at Orono, LLC a construction loan with a total borrowing capacity of approximately $15.2 million. The construction loan will be used to finance the development of a student housing property in Orono, Maine. The construction loan matures on June 30, 2014, but can be extended until December 31, 2015, subject to certain conditions. The interest rate on the construction loan is LIBOR plus 2.75%. The construction loan agreement contains representations, warranties, covenants (including financial covenants upon commencement of operations) and other terms that are customary for construction financing. At June 30, 2011, no amounts were outstanding under this loan.

On March 4, 2011, Campus Crest at Columbia, LLC, a subsidiary of the Company, entered into a Construction Loan Agreement with BOKF, NA (d/b/a Bank of Oklahoma), pursuant to which Bank of Oklahoma agreed to provide Campus Crest at Columbia, LLC a construction loan with a total borrowing capacity of approximately $17.0 million. The construction loan will be used to finance the development of a student housing property in Columbia, Missouri. The construction loan matures on March 4, 2014, but can be extended until March 4, 2015, subject to certain conditions. The interest rate on the construction loan is the greater of (i) LIBOR plus 3.0%, or (ii) 4.5%. Loan payments are interest only through April 2013. The construction loan agreement contains representations, warranties, covenants (including financial covenants upon commencement of operations) and other terms that are customary for construction financing. At June 30, 2011, approximately $4.4 million was outstanding under this loan.

On November 19, 2010, the Company entered into a construction loan with The PrivateBank and Trust Company of approximately $52.8 million. The construction loan will be used to finance the development of student housing properties in each of Ames, Iowa, Clarksville, Tennessee, Fort Collins, Colorado and Fort Wayne, Indiana. The construction loan initially matures on November 19, 2013, but can be extended until November 19, 2014, subject to certain conditions. The interest rate is LIBOR plus 4.75% and the construction loan agreement contains representations, warranties, covenants (including financial covenants upon commencement of operations) and other terms that are customary for construction financing. Loan payments are interest only through November 2012. At June 30, 2011 and December 31, 2010, approximately $7.3 million and $0 were outstanding under this loan, respectively.

During the three and six months ended June 30, 2010, the Predecessor was a party to two construction loans which were outstanding. The first construction loan had an outstanding principal amount of approximately $148.9 million, was secured by nine properties, had an interest rate of interest LIBOR plus 1.80% (when taken together with an interest rate swap, fixed the loan’s rate at 6.0%) and had interest only payments with a balloon maturity date of October 31, 2010. The second construction loan had an outstanding principal amount of approximately $15.8 million, was secured by one property, had an interest rate equal to the greater of LIBOR plus 3.0% or 5.5% and had a maturity date of October 31, 2010. Both construction loans were repaid in full on October 19, 2010 upon completion of the Offering.

Lines of Credit

On October 19, 2010, the Company closed a credit agreement (our “revolving credit facility”) with Citibank, N.A. and certain other parties thereto relating to a three-year, $125 million senior secured revolving credit facility. This facility is secured by 12 of our wholly owned properties. As of June 30, 2011 and December 31, 2010, approximately $74.5 million and $42.5 million was outstanding under our revolving credit facility, respectively. At June 30, 2011, the Company had approximately $14.4 million of borrowing capacity under this facility. Borrowings under our revolving credit facility were used to repay indebtedness which existed prior to the Offering or were used to finance our required equity contribution for projects expected to be built and open for the 2011-2012 academic year or future academic years.

The amount available for us to borrow under this credit facility is based on a percentage of the appraisal value of our properties that form the borrowing base of the facility. We intend to pursue alternative, longer-term financing for some or all of the properties, which, prior to the completion of the Offering, secured our $104.0 million mortgage loan since they were released from the lien of that mortgage upon its repayment in full in connection with the Offering. For eligible properties, this may include debt financing provided by Freddie Mac or Fannie Mae.

Our revolving credit facility has an accordion feature that allows us to request an increase in the total commitments of an additional $75 million up to a total commitment of $200 million. Amounts outstanding under our revolving credit facility bear interest at a floating rate equal to, at our election, the Eurodollar Rate or the Base Rate (each as defined in the revolving credit facility) plus a spread. The spread depends upon our leverage ratio and ranges from 2.75% to 3.50% for Eurodollar Rate based borrowings and from 1.75% to 2.50% for Base Rate based borrowings. At June 30, 2011, the effective interest rate on the revolving credit facility was 2.95%.

Our ability to borrow under our revolving credit facility is subject to our ongoing compliance with a number of customary financial covenants, including:

	•		a maximum leverage ratio of 0.60 : 1.00;

	•		a minimum fixed charge coverage ratio of 1.50 : 1.00;

	•		a minimum ratio of fixed rate debt and debt subject to hedge agreements to total debt of 66.67%;

	•		a maximum secured recourse debt ratio of 20%; and

	•		a minimum tangible net worth of the sum of 75% of our tangible net worth plus an amount equal to 75% of the net proceeds of any additional equity issuances.

Under our revolving credit facility, for any three month period ending on or after December 31, 2011, our distributions may not exceed the greater of (i) 90.0% of our Funds From Operations (“FFO”) or (ii) the amount required for us to qualify and maintain our status as a REIT. For the three month period ending September 30, 2011, our distributions may not exceed the greater of (i) 95.0% of our Funds From Operations (“FFO”) or (ii) the amount required for us to qualify and maintain our status as a REIT. For any three month period in 2011 ending on or prior to June 30, 2011, our distributions may not exceed the greater of (i) 100.0% of our FFO or (ii) the amount required for us to qualify and maintain our status as a REIT. If a default or event of default occurs and is continuing, we may be precluded from making certain distributions (other than those required to allow us to qualify and maintain our status as a REIT).

We and certain of our subsidiaries guarantee the obligations under our revolving credit facility and we and certain of our subsidiaries have pledged specified assets (including real property), stock and other interests as collateral for our revolving credit facility obligations. At June 30, 2011 and December 31, 2010, we were in compliance with the above financial covenants with respect to our revolving credit facility.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details