5. Investment in Unconsolidated Entities

We have investments in real estate ventures with HSRE, Copper Beech, and Beaumont that we do not consolidate. These joint ventures are engaged primarily in developing, constructing, owning and managing student housing properties. Both we and our joint venture partners hold joint approval rights for major decisions, including those regarding property acquisition and disposition as well as property operation. As such, we hold noncontrolling interests in these joint ventures and account for them under the equity method of accounting.

We act as the operating member and day-to-day manager for these joint ventures and as such are entitled to receive fees for providing development and construction services (as applicable) and management services.

In March 2013, we entered into a joint venture agreement with HSRE, HSRE-Campus Crest X, LLC ("HSRE X"), to develop and operate additional purpose-built student housing properties. HSRE X is currently building two new student housing properties with completion targeted for the 2014-2015 academic year. The properties, located in Louisville, Kentucky and Greensboro, North Carolina are expected to have approximately 1,200 beds and have an estimated cost of $65.6 million. We own a 30% interest in this venture and affiliates of HSRE own the balance.

We are the guarantor of the construction and mortgage debt of our joint ventures with HSRE. Details of our unconsolidated investments at September 30, 2013 are presented in the following table (dollars in thousands):

										Debt
											Weighted
					Number of Properties						Average
	Our			Year	In	Under		Our Total		Amount	Interest
Unconsolidated Entities	Ownership			Founded	Operations	Development		Investment		Outstanding	Rate			Maturity Date / Range
HSRE-Campus Crest I, LLC	49.9	%		2009	3	-	$	10,751	$	32,980	2.68	%	⁽¹⁾	11/09/2013 – 1/09/2014
HSRE-Campus Crest IV, LLC	20.0	%		2011	1	-		2,271		16,893	5.75	%	⁽²⁾	12/1/2013
HSRE-Campus Crest V, LLC	10.0	%		2011	3	-		3,297		45,670	2.90	%	⁽¹⁾	12/20/2014 – 01/05/2015
HSRE-Campus Crest VI, LLC	20.0	%		2012	3	-		7,226		32,994	2.55	%	⁽¹⁾	5/08/2015 – 12/19/2015
HSRE-Campus Crest IX, LLC	30.0	%		2013	-	1		12,427		-	n/a			n/a
HSRE-Campus Crest X, LLC	30.0	%		2013	-	2		7,420		-	n/a			n/a
CB Portfolio	47.2	%	⁽³⁾	2013	35	1		241,821		478,474	5.57	%	⁽⁴⁾	10/01/2013 – 10/01/2020
DCV Holdings, LP	20.0	%		2013	-	1		38,055		-	n/a			n/a
Total Unconsolidated Entities					45	5	$	323,268	$	607,011	5.05	%

⁽¹⁾ Variable interest rates.

⁽²⁾ Comprised of one fixed rate loan.

⁽³⁾ At September 30, 2013, our effective interest in the CB Portfolio was 47.2%. As of October 1, 2013, our interest in the Copper Beech portfolio was amended as noted below in the Amendment to Copper Beech Purchase Agreement.

⁽⁴⁾ Comprised of fixed rate debt with the exception of the construction loan borrowings related to the 2013 phase II deliveries

The following is a summary of the combined financial position of our unconsolidated entities with HSRE and DCV Holdings in their entirety, not only our interest in the entities, including provisional fair value balances that are subject to our allocation analyses and appraisals, for the periods presented (amounts in thousands):

	September 30,		December 31,
	2013		2012
Assets
Student housing properties, net	$	326,956	$	143,108
Other assets		17,883		40,154
Total assets	$	344,839	$	183,262

Liabilities and Equity
Mortgage and construction loans	$	128,537	$	92,456
Other liabilities		42,337		30,402
Owners' equity		173,965		60,404
Total liabilities and owners' equity	$	344,839	$	183,262

Company's share of historical owners' equity	$	33,163	$	14,078
Preferred investment⁽¹⁾		49,521		11,828
Net difference in carrying value of investment versus net book value of underlying net assets⁽²⁾		(1,237)		(3,351)
Carrying value of investment in unconsolidated entities	$	81,447	$	22,555

⁽¹⁾ As of September 30, 2013, we held aggregate Class B interests in The Grove at Greensboro, The Grove at Louisville, Kentucky, The Grove at San Angelo, Texas, The Grove at Indiana, Pennsylvania, and The Grove at Conway, Arkansas of approximately $16.5 million, entitling us to a 9.0% return on our investment, as well as a Class A interest in DCV Holdings of $33.0 million, entitling us to a 5.22% return on our investment. As of December 31, 2012, we held aggregate Class B interests in The Grove at San Angelo, Texas, The Grove at Indiana, Pennsylvania, and The Grove at Conway, Arkansas of approximately $11.8 million. These preferred interests entitle us to a return on our investment but otherwise do not change our effective ownership interest in these properties.

⁽²⁾ This amount represents the aggregate difference between our historical cost basis and the basis reflected at the entity 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 venture’s basis in those interests, the capitalization of additional investment in the unconsolidated entity and the elimination of service related revenue to the extent of our percentage ownership.

The following is a summary of the financial position of our unconsolidated entity with Copper Beech in its entirety, not only our interest in the entity, including provisional fair value balances that are subject to our allocation analyses and appraisals, for the periods presented (amounts in thousands):

	September 30,
	2013
Assets
Student housing properties, net	$	953,835
Intangible assets		7,230
Other assets		9,557
Total assets	$	970,622

Liabilities and Equity
Mortgage and construction loans	$	515,859
Other liabilities		20,073
Owners' equity		434,690
Total liabilities and owners' equity	$	970,622

Company's share of historical owners' equity	$	225,181
Net difference in carrying value of investment versus net book value of underlying net assets⁽¹⁾		16,640
Carrying value of investment in unconsolidated entity	$	241,821

⁽¹⁾

This amount represents the aggregate difference between our historical cost basis and the basis reflected at the entity level, which is typically amortized over the life of the related asset. The basis differential occurs primarily due to the capitalization of additional investment in the unconsolidated entity.

The following is a summary of the combined operating results for our unconsolidated entities with HSRE and DCV Holdings in their entirety, not only our interest in the entities, including results based on the provisional fair value adjustments that are subject to our allocation analyses and appraisals, for the periods presented (in thousands):

	Three months ended				Nine months ended
	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Revenues	$	6,341	$	4,162	$	15,922	$	13,337
Expenses:
Operating expenses		3,070		2,159		8,327		7,242
Interest expense		1,260		1,091		3,553		3,790
Depreciation and amortization		1,592		1,134		4,298		3,555
Other expenses		4,571		-		4,588		-
Total expenses		10,493		4,384		20,766		14,587
Net loss	$	(4,152)	$	(222)	$	(4,844)	$	(1,250)

Company’s share of net income (loss)⁽¹⁾	$	(650)	$	(20)	$	(658)	$	(135)
Income on preferred investments		479		106		684		418
Equity in earnings of unconsolidated entities	$	(171)	$	86	$	26	$	283

⁽¹⁾ Amount differs from net loss multiplied by our ownership percentage due to the amortization of the aggregate difference between our historical cost basis and our basis reflected at the entity level and elimination of management fees.

The following is a summary of the combined operating results for our unconsolidated entity, Copper Beech, in its entirety, not only our interest in the entity, including results based on the provisional fair value adjustments that are subject to our allocation analyses and appraisals, for the periods presented (in thousands):

	Three months ended		Nine months ended
	September 30, 2013		September 30, 2013

Revenues	$	22,899	$	49,400
Expenses:
Operating expenses		10,023		19,841
Interest expense		6,943		15,352
Depreciation and amortization		9,304		22,363
Other expenses		818		1,848
Total expenses		27,088		59,404
Net loss	$	(4,189)	$	(10,004)

Company’s share of net income (loss)⁽¹⁾	$	1,473	$	3,582

⁽¹⁾	Amount differs from net loss multiplied by our ownership percentage due to the amortization of the aggregate difference between our historical cost basis and our basis reflected at the entity level and our preferred payment.