8. Investment in Unconsolidated Entities

The Company has investments in real estate ventures with HSRE, the former members (the “CB Investors”) of Copper Beech Townhome Communities, LLC ("CBTC") and Copper Beech Townhome Communities (PA), LLC (“CBTC PA,” together with CBTC, "Copper Beech"), Brandywine and Beaumont that the Company does not consolidate. These joint ventures are engaged primarily in developing, constructing, owning and managing student housing properties. Both the Company and its joint venture partners hold joint approval rights for major decisions, including those regarding property acquisitions and dispositions as well as property operation. As such, the Company has significant influence but not control in these joint ventures and accounts for them under the equity method of accounting.

The Company acts as the operating member and day-to-day manager for its investments with HSRE, Brandywine and Beaumont and earns fees for these management services. Additionally, for the three months ended March 31, 2014, the Company provided development and construction services to the ventures with HSRE, Brandywine, Copper Beech and Beaumont and recognized fees as the services were performed. The fees related to development and construction services are included in "Income (loss) from discontinued operations" in the accompanying consolidated statements of operations and comprehensive income (loss). No development and construction services were provided during the three months ended March 31, 2015.

In January 2014, CSH Montreal LP (“CSH Montreal”), the Company’s joint venture with Beaumont, formed HIM Holdings LP (“HIM Holdings”), to facilitate the acquisition of the Holiday Inn Midtown in Montréal, Québec for CAD 65 million ($56.2 million). In connection with the acquisition of the Holiday Inn property, the Company increased its ownership interest from 20.0% to 47.0% in CSH Montreal, the joint venture that ultimately owns the Holiday Inn Midtown. In January 2014, with the acquisition of the Holiday Inn Midtown property, the Company provided CAD 16.0 million ($13.8 million) of preferred bridge equity financing to CSH Montreal to be repaid on or before September 2, 2014. As of September 2, 2014, the Company’s preferred equity had not been repaid in full and as a result the Company is now entitled to 60.5% of all cash distributions related to earnings from CSH Montreal, with Beaumont and its partners being entitled to the remaining 39.5%. The Company retains its common ownership interest of 47.0% in CSH Montreal and recognizes 47.0% in all losses from CSH Montreal with Beaumont and its partners recognizing the remaining 53.0%. The Company’s maximum exposure to loss is its investment in CSH Montreal and the amount, if any, that could be due under its debt guarantee described in Note 17. While the Company is not obligated to provide additional capital to CSH Montreal, the Company may fund operating commitments up to its 47.0% common ownership in the partnership. As described in Note 18, the Company entered into a potential buyout agreement of its interest in June of 2015, and therefore estimates that it will provide no additional capital funding. However, if the Company does not close on this potential transaction, the Company expects to fund $3.9 million during the remainder of 2015, which is in addition to the $0.8 million that the Company has already funded to date during the year.

In conjunction with the Holiday Inn Midtown acquisition, CSH Montreal entered into a CAD 112.0 million ($88.4 million at the March 31, 2015 exchange rate) acquisition and development credit facility to help fund the conversion of both hotels into upscale student housing towers. The credit facility provides for variable interest-only payments at the higher of the following: (i) Canadian Prime rate, which was 3.00% at March 31, 2015, plus a weighted average spread of 3.39% or (ii) the Canadian Dealer Offered Rate (“CDOR”), which was 1.298% at March 31, 2015, plus 1%, plus a weighted average spread of 3.39% through its maturity date on January 13, 2016. This facility has one twelve-month extension option, subject to lender approval.

In January 2014, the Company amended and restated the HSRE-Campus Crest I, LLC operating agreement, which had the effect of exchanging its preferred interests in The Grove at San Angelo, Texas, and The Grove at Conway, Arkansas, for additional membership interests in HSRE-Campus Crest I, LLC, effectively increasing the Company’s equity investment in the joint venture to 63.9% from 49.9%. HSRE-Campus Crest I, LLC owns The Grove at San Angelo, Texas, and previously owned The Grove at Lawrence, Kansas, and The Grove at Conway, Arkansas. On March 31, 2015, The Grove at Lawrence, Kansas and The Grove at Conway, Arkansas were sold to third parties (see Note 7).

In February 2013, the Company entered into purchase and sale agreements to acquire an approximate 48.0% interest in a portfolio of 35 student housing properties, two undeveloped land parcels and a corporate office building held by the members of the Copper Beech Portfolio for an initial purchase price of approximately $230.6 million, including the repayment of $106.7 million of debt. The remaining interests in the Copper Beech Portfolio are held by certain of the former members of CBTC and CBTC PA, (the “CB Investors”). In September 2013, the Company entered into an amendment to the above referenced purchase and sale agreements for consideration of $4.0 million whereby it transferred its 48.0% interest in five properties in the Copper Beech Portfolio back to the CB Investors and deferred the acquisition of two development properties as consideration for an additional 19.0% interest in each of the remaining 28 properties in the Copper Beech Portfolio. On August 18, 2014, the Company elected not to exercise the first purchase option to acquire additional interests in the properties comprising the Copper Beech Portfolio. As a result of this decision, the Company was entitled to 48.0% of the operating cash flows in the 35 operating properties, one office building and one parcel of land.

On January 30, 2015, the Company completed the acquisition of substantially all of the remaining interests in 28 student housing properties, 2 undeveloped land parcels and a corporate office building in the Copper Beech Portfolio. See Note 6 for additional information.

The Company is the guarantor of the construction and mortgage debt or credit facilities of its joint ventures with HSRE, Brandywine and Beaumont (see Note 17). Details of the Company’s unconsolidated investments at March 31, 2015 are presented in the following table (dollars in thousands):

								Debt
											Weighted
					Number of						Average
	Our			Year	Properties In	Total		Amount			Interest
Unconsolidated Entities	Ownership			Founded	Operation	Investment		Outstanding			Rate				Maturity Date / Range
HSRE-Campus Crest I, LLC		63.9	%	2009	1	$	3,719	$	11,166	⁽⁴⁾		2.68	%	⁽¹⁾	5/09/2015	⁽³⁾
HSRE-Campus Crest V, LLC		10.0	%	2011	2		-		36,289	⁽⁴⁾		2.88	%	⁽¹⁾	5/05/2015 – 7/20/2015	⁽³⁾
HSRE-Campus Crest VI, LLC		20.0	%	2012	3		6,645		53,706	⁽⁴⁾		2.49	%	⁽¹⁾	5/08/2015 – 12/19/2015	⁽³⁾
HSRE-Campus Crest IX, LLC		30.0	%	2013	1		19,394		90,081	⁽⁴⁾		2.38	%	⁽¹⁾	7/25/2016
HSRE-Campus Crest X, LLC		30.0	%	2013	2		7,836		42,579	⁽⁴⁾		2.36	%	⁽¹⁾	9/06/2016 – 9/30/2018
CB Portfolio		48.0	%	2013	7		50,674		195,791	⁽⁴⁾		5.41	%	⁽¹⁾	10/01/2015 – 10/01/2020
CSH Montreal		47.0	%	2013	2		5,515		82,113	⁽⁴⁾		5.69	%	⁽¹⁾	1/13/2016
Total unconsolidated entities					18	$	93,783	$	511,725			4.12	%

⁽¹⁾

Variable interest rates.

⁽²⁾

Comprised of fixed rate debt.

⁽³⁾

Certain loans which matured in May 2015 and are scheduled to mature during July 2015 are in the process of being refinanced as of the date of this filing.

⁽⁴⁾

The amount outstanding for debt represents 100% of the debt outstanding at each of the respective joint ventures in which the Company has varying ownership percentages. See Note 17 for a discussion of amounts of the outstanding debt in which the Company guarantees on behalf of certain of these joint ventures.

The following is a summary of the combined financial position of the Company’s unconsolidated entities with HSRE, Brandywine and Beaumont in their entirety, not only the Company’s interest in the entities, for the periods presented (in thousands):

	March 31,		December 31,
	2015		2014
Assets
Student housing properties, net	$	489,075	$	437,108
Development in process		-		7,429
Other assets		12,321		12,947
Total assets	$	501,396	$	457,484

Liabilities and Equity
Mortgage and construction loans	$	315,935	$	354,759
Other liabilities		19,237		29,364
Owners' equity		166,224		73,361
Total liabilities and owners' equity	$	501,396	$	457,484

Company's share of historical owners' equity	$	52,860	$	30,481
Preferred investment⁽¹⁾		7,322		7,322
Net difference in carrying value of investment versus net book value of underlying net assets⁽²⁾		(17,073)		3,219
Carrying value of investment in HSRE and other non-Copper Beech entities	$	43,109	$	41,022

	⁽¹⁾	As of March 31, 2015, the Company had Class B membership interests in The Grove at Indiana, Pennsylvania, The Grove at Greensboro, North Carolina, and The Grove at Louisville, Kentucky, of $2.7 million, $2.7 million and $1.9 million, respectively, entitling the Company to a 9.0% return on its investment upon the respective property being operational.
	⁽²⁾	This amount represents the aggregate difference between the Company’s carrying amount and its underlying equity in the net assets of its investments, which is typically amortized over the life of the related asset. The basis differential occurs primarily due to the other than temporary impairments recorded during 2014, 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 entities, and the elimination of service related revenue to the extent of the Company’s percentage ownership.

ASC 323 Investments – Equity Method and Joint Ventures and Article 4.08(g) of Regulation S-X requires that summarized financial information of material investments accounted for under the equity method be provided of the investee’s financial position and results of operations including assets, liabilities and results of operations under the investee’s historical cost basis of accounting. Notwithstanding the extensive efforts of the Company and Copper Beech to compile the necessary financial information, the Company has determined that the information needed for the preparation of historical financial statements of the Copper Beech Portfolio to satisfy these requirements is not available or otherwise sufficiently reliable. As a result, the Company has elected to present financial information on its investment in Copper Beech on the Company’s cost basis for its investment as of March 31, 2015 and December 31, 2014 as it believes this information is reliable and relevant to the users of its financial statements. Further, although the Company acknowledges that the information provided does not comply with all of the provisions of ASC 323 or Article 4.08(g) of Regulation S-X, it does not believe that the lack of the omitted disclosure, or the information of the financial position reflecting the cost basis of its investment provided results in a material omission or misstatement of the Company’s consolidated financial statements taken as a whole.

The following is a summary of the financial position of the Copper Beech entities at 100% basis for the seven and thirty five properties in which the Company held a 48% interest as of March 31, 2015 and December 31, 2014, respectively (in thousands):

	March 31,		December 31,
	2015		2014
Assets
Student housing properties, net	$	306,139	$	906,614
Intangible assets		2,283		7,212
Other assets		14,178		14,293
Total assets	$	322,600	$	928,119

Liabilities and Equity
Mortgage and construction loans	$	206,122	$	476,985
Other liabilities		4,533		15,541
Owners' equity		111,945		435,593
Total liabilities and owners' equity	$	322,600	$	928,119

Company's share of historical owners' equity	$	53,734	$	199,281
Net difference in carrying value of investment versus net book value of underlying net assets⁽¹⁾		(3,060)		19,437
Carrying value of investment in unconsolidated entity	$	50,674	$	218,718

⁽¹⁾

This amount represents the aggregate difference between the 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 impairment recognized during the year ended December 31, 2014 in connection with not exercising the Copper Beech purchase option, offset by the capitalization of transaction costs incurred to acquire the Company's interests in the Copper Beech entities.

The following is a summary of the combined operating results for the Company’s unconsolidated entities with HSRE, Brandywine and Beaumont in their entirety, not only the Company’s interest in the entities. For the three months ended March 31, 2015 and 2014, this summary includes results for 11 unconsolidated properties and 14 unconsolidated properties, respectively (in thousands):

	Three Months Ended March 31,
	2015		2014

Revenues	$	9,055	$	6,456
Expenses:
Operating expenses		6,968		3,561
Interest expense		2,894		1,051
Depreciation and amortization		3,856		2,030
Other (income) expense		16		(53)
Total expenses		13,734		6,589
Net loss	$	(4,679)	$	(133)

The following is a summary of the operating results for the Company’s unconsolidated Copper Beech entities in their entirety, not only the Company’s interest in the entities. For the three months ended March 31, 2015 and 2014, this summary includes results for 7 unconsolidated properties and 28 unconsolidated properties, respectively (in thousands):

	Three Months Ended March 31,
	2015		2014

Revenues	$	7,628	$	19,265
Expenses:
Operating expenses		2,571		7,300
Interest expense		2,445		2,940
Depreciation and amortization		1,263		9,777
Other expenses		182		339
Total expenses		6,461		20,356
Net income (loss)	$	1,167	$	(1,091)