Debt

9 Months Ended

Sep. 30, 2011

9. Debt

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


	September 30,		December 31,
	2011		2010
Fixed-rate mortgage loans	$	109,358		60,840
Construction loans		39,820		—
Lines of credit and other debt		43,552		42,500

	$	192,730		103,340

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


	Nine Months Ended
	September 30,
	2011			2010
Balance at beginning of period	$	103,340			343,172
Additions:
Draws on lines of credit		44,500			2,540
Draws under construction loans		39,820			498
Proceeds from mortgage loans		48,518			—
Proceeds from related party loan ⁽¹⁾		—			3,020
Accretion of interest expense ⁽¹⁾		—			3,481
Assumption of bonds		2,552			—
Deductions:
Payments on lines of credit		(46,000	)		(48	)
Payments on construction loans		—			(338	)
Payments on related party loan		—			(80	)


Balance at end of period	$	192,730			352,245


(1)		Relates to sale of 90% of our interest in Campus Crest at Milledgeville, LLC, sale of 99% of our interest in HSRE I, and sale of 99.9% of our interest in Campus Crest at Carrollton, LLC. See note 7.

The estimated fair value of our mortgage and construction loans at September 30, 2011 and December 31, 2010 was approximately $154.9 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 (Level 2 fair value measurement). 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 September 30, 2011 and December 31, 2010 consisted of the following (dollar amounts in thousands):


			Principal		Principal					Interest			Interest
			Outstanding		Outstanding		Stated			Rate at			Rate at
	Face		at September		December		Interest			September			December			Maturity		Amor-
	Amount		30, 2011		31, 2010		Rate			30, 2011			31, 2010			Date		tization
Mortgage loans

The Grove at Nacogdoches	$	17,160		17,160		—		5.01	%		5.01	%		N/A			9/1/18	30 years
The Grove at Ellensburg		16,125		16,125		—		5.10	%		5.10	%		N/A			9/1/18	30 years
The Grove at Greeley		15,233		15,233		—		4.29	%		4.29	%		N/A			10/1/18	30 years
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⁾		37,523		26,414		—	LIBOR + 4.75%				4.97	%		N/A			11/19/13		Interest only through 11/2012
The Grove at Columbia		17,046		13,406		—	Greater of LIBOR + 3.00% or 4.50%				4.50	%		N/A			3/4/14		Interest only through 4/2013
The Grove at Auburn		16,294		—		—	LIBOR + 2.95%				N/A			N/A			7/22/14	Interest only
The Grove at Orono		15,206		—		—	LIBOR + 2.75%				N/A			N/A			6/30/14	Interest only

Total	$	195,427		149,178		60,840


(1)		Secured by The Grove at Ames, The Grove Clarksville and The Grove at Fort Wayne. At September 30, 2011, approximately $17.2 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 mortgage loans for The Grove at Ellensburg and The Grove at Nacogdoches closed in August 2011. The mortgage loan for The Grove at Greeley closed in September 2011. These three loans require interest only payments, plus certain reserves and escrows, that are payable monthly through September 2013. Monthly payments of principal and interest, plus certain reserve and escrows, 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. These loans generally may not be prepaid prior to maturity; in certain cases, prepayment is allowed subject to prepayment penalties.

The mortgage 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 nine months ended September 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. At September 30, 2011, no amounts were outstanding under this loan.

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 September 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 was 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 September 30, 2011, approximately $13.4 million was outstanding under this loan.

On November 19, 2010, the Company entered into a construction loan with The PrivateBank and Trust Company to finance the development of student housing properties in each of Ames, Iowa, Clarksville, Tennessee 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. The amount available under the construction loan totals approximately $37.5 million. At September 30, 2011 and December 31, 2010, approximately $26.4 million and $0 were outstanding under this loan, respectively.

During the three and nine months ended September 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 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 was secured by 13 of our wholly owned properties.

On August 17, 2011, the Company and its lenders amended the revolving credit facility. As a result of the amendment, the credit facility was increased to $150 million and its interest rate was adjusted, the result of which decreased the spread over the elected floating interest rate. Additionally, the revolving credit facility, which was formerly secured, became unsecured and now matures on August 17, 2014, subject to a one-year extension option the Company may exercise at its option, pursuant to certain terms and conditions.

As of September 30, 2011 and December 31, 2010, approximately $41.0 million and $42.5 million was outstanding under our revolving credit facility, respectively. At September 30, 2011, the Company had approximately $71.8 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 built and opened for the 2011-2012 academic year or for projects expected to be built and open for future academic years. The amount available for us to borrow under this credit facility is based on the lesser of (i) 60.0% of the “as is” appraised value of our properties that form the borrowing base of the facility, and (ii) the amount that would create a debt service coverage ratio of not less than 1.50 : 1.00.

Our revolving credit facility has an accordion feature that allows us to request an increase in the total commitments of an additional $175 million up to a total commitment of $325 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 1.75% to 2.50% for Eurodollar Rate based borrowings and from 0.75% to 1.50% for Base Rate based borrowings. At September 30, 2011, the interest rate on the revolving credit facility was 1.97%.

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%;

	•		a minimum tangible net worth of not less than the sum of approximately $227.1 million plus an amount equal to 75% of the net proceeds of any additional equity issuances; and

	•		a maximum secured debt ratio of not greater than 50% through February 17, 2013, and not greater than 45% on any date thereafter.

Under our revolving credit facility, 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. 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 provided a negative pledge against specified assets (including real property), stock and other interests. At September 30, 2011, we were in compliance with the above financial covenants with respect to our revolving credit facility.