Investment in Unconsolidated Entities

9 Months Ended

Sep. 30, 2011

Investment in Unconsolidated Entities [Abstract]

8. Investment in Unconsolidated Entities

At September 30, 2011, we have investments in two real estate venture entities with HSRE. The first real estate venture, HSRE-Campus Crest I, LLC (“HSRE I”), is not consolidated by the Company. At September 30, 2011 and December 31, 2010, this entity, in which our investment is accounted for under the equity method, owned six student housing properties. Three of these properties, The Grove at Lawrence, The Grove at Moscow and The Grove at San Angelo, opened in 2009. The remaining three properties, The Grove at Huntsville, The Grove at Conway and The Grove at Statesboro opened in 2010. We held a 49.9% noncontrolling interest in this unconsolidated entity at September 30, 2011 and December 31, 2010. Prior to the Offering and Formation Transactions, we held a 10% noncontrolling interest in this venture. As discussed in note 6, also prior to the Offering, the HSRE I venture owned an additional student housing property, The Grove at San Marcos. The Company acquired the remaining ownership interest in this property, which opened in 2009, concurrent with the Offering and Formation Transactions.

The second real estate venture, HSRE-Campus Crest IV, LLC (“HSRE IV”), was entered into in January 2011. HSRE will contribute up to $50 million to the venture, which develops and operates additional purpose-built student housing properties. The Company’s investment in this real estate venture is accounted for under the equity method. We own a 20% noncontrolling interest in this unconsolidated entity at September 30, 2011. HSRE IV opened two student housing properties in August 2011, The Grove at Denton and The Grove at Valdosta. The Company made contributions to HSRE IV of approximately $3.0 million during the nine months ended September 30, 2011, consisting of cash and assigned interests in Campus Crest at Denton, LP and Campus Crest at Valdosta, LLC.

We recorded equity in loss from these ventures of approximately $0.3 million and $0.1 million for the three months ended September 30, 2011 and 2010, respectively, and approximately $0.9 million and $0.2 million for the nine months ended September 30, 2011 and 2010, respectively. In addition to acting as the operating member for these ventures, the Company and its Predecessor are entitled to receive fees for providing development and construction services (as applicable) and management services to the ventures. The Company earned approximately $4.8 million and $4.3 million in fees for the three months ended September 30, 2011 and 2010, respectively, and approximately $26.4 million and $35.1 million in fees for the nine months ended September 30, 2011 and 2010, respectively, for services provided to the ventures. The development, construction and management service fees from these unconsolidated entities are reflected in the development, construction and management services line item in the accompanying condensed consolidated and combined statements of operations.

The Company is the guarantor of the construction debt of these ventures, which totaled approximately $110.8 million and $83.2 million at September 30, 2011 and December 31, 2010, respectively. The ventures’ construction debt matures at various dates during 2012 and 2013.

Condensed combined financial information for unconsolidated entities as of September 30, 2011 and December 31, 2010 and for the three and nine month periods ended September 30, 2011 and 2010 are as follows (amounts in thousands):

Balance Sheets


	September 30,		December 31,
	2011		2010
Assets:
Student housing properties, net	$	154,292		112,224
Other assets		6,394		5,444


Total assets	$	160,686		117,668


Liabilities and owners’ equity:
Construction debt	$	110,844		83,222
Other liabilities		10,514		5,117
Owners’ equity		39,328		29,329

Total liabilities and owners’ equity	$	160,686		117,668


	September 30,			December 31,
	2011			2010
Share of historical owners’ equity	$	13,424			12,479

Preferred investment ^{(1, 2)}		6,839			4,781
Net difference in carrying value of investment versus net book value of underlying net assets ⁽³⁾		(3,512	)		(3,509	)


Carrying value of investment in unconsolidated entities	$	16,751			13,751


(1)		As of September 30, 2011, the Company has a Class B member interest in The Grove at Valdosta of approximately $1.1 million. This preferred interest entitles the Company to a 9.0% return on its investment but otherwise does not change the Company’s effective 20% ownership interest in this entity or operating property.

(2)		As of September 30, 2011, the Company has a Class B member interest in both The Grove at San Angelo and The Grove at Moscow of approximately $2.8 million and $3.0 million, respectively. As of December 31, 2010, the Company had a Class B member interest in both The Grove at San Angelo and The Grove at Moscow of approximately $2.3 million and $2.5 million, respectively. These preferred interests entitle the Company to a 9.0% return on its investment but otherwise do not change the Company’s effective 49.9% ownership interest in these entities or operating properties.

(3)		This amount represents the aggregate difference between our historical cost basis and the basis reflected at the entity (i.e., venture) level, which is typically amortized over the life of the related asset. The basis differential occurs primarily due to the difference between the allocated value to acquired entity interests and the ventures’ basis in those interests, the capitalization of additional investment in the unconsolidated entities, and the elimination of profit earned by us from services provided to these entities to the extent of our percentage ownership.

Statements of Operations


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues	$	5,038			3,716			12,547			7,827
Expenses:
Operating expenses		2,541			1,729			6,662			4,401
Interest expense		1,867			1,201			4,811			3,094
Depreciation and amortization		1,348			1,122			3,586			2,711


Total expenses		5,756			4,052			15,059			10,206


Net loss	$	(718	)		(336	)		(2,512	)		(2,379	)


Company’s and Predecessor’s share of net loss ⁽¹⁾	$	(309	)		(49	)		(944	)		(243	)


(1)		Amount differs from net loss multiplied by the Company’s ownership percentage due to the amortization of the aggregate difference between our historical cost basis and our basis reflected at the entity (i.e., venture) level.

- Definition

The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

+ References+ Details