UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

CAMPUS CREST COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)		27-2481988 (I.R.S. Employer Identification No.)

2100 Rexford Road, Suite 414, Charlotte, NC (Address of principal executive offices)		28211 (Zip Code)

(704) 496-2500
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

     Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at August 5, 2011
Common Stock, $0.01 par value per share		30,698,994 shares

 

 

FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2011

TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets of Campus Crest Communities, Inc. as of June 30, 2011 and December 31, 2010			1
Condensed Consolidated Statement of Operations of Campus Crest Communities, Inc. and Condensed Combined Statement of Operations of Campus Crest Communities Predecessor for the three and six months ended June 30, 2011 and 2010			2
Condensed Consolidated Statement of Changes in Equity and Comprehensive Loss of Campus Crest Communities, Inc. for the six months ended June 30, 2011			3
Condensed Consolidated Statement of Cash Flows of Campus Crest Communities, Inc. and Condensed Combined Statement of Cash Flows of Campus Crest Communities Predecessor for the six months ended June 30, 2011 and 2010			4
Notes to Condensed Consolidated Financial Statements of Campus Crest Communities, Inc. and Condensed Combined Financial Statements of Campus Crest Communities Predecessor			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures about Market Risk			41
Item 4. Controls and Procedures			41
Part II. Other Information
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults Upon Senior Securities			42
Item 4. [Removed and Reserved]			42
Item 5. Other Information			42
Item 6. Exhibits			42
SIGNATURES			43
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Item 1. Financial Statements

CAMPUS CREST COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

		June 30,				December 31,
		2011				2010
Assets
Investment in real estate, net:
Student housing properties		$	373,502				372,746
Accumulated depreciation			(66,943	)			(57,463	)
Development in process			74,105				24,232
Investment in real estate, net			380,664				339,515
Investment in unconsolidated entities			18,109				13,751
Cash and cash equivalents			8,754				2,327
Restricted cash and investments			1,826				3,305
Student receivables, net of allowance for doubtful accounts of $961 and $431 at June 30, 2011 and December 31, 2010, respectively			663				954
Cost in excess of construction billings			5,270				1,827
Other assets			9,640				9,578
Total assets		$	424,926				371,257
Liabilities and equity
Liabilities:
Mortgage and construction loans		$	72,564				60,840
Lines of credit			74,500				42,500
Accounts payable and accrued expenses			36,231				14,597
Other liabilities			5,790				6,530
Total liabilities			189,085				124,467
Equity:
Stockholders’ equity:
Common stock, $0.01 par value, 90,000,000 shares authorized, 30,698,994 and 30,682,215 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			307				307
Additional paid-in capital			248,549				248,515
Accumulated deficit and distributions			(16,421	)			(5,491	)
Accumulated other comprehensive loss			(392	)			(172	)
Total Campus Crest Communities, Inc. stockholders’ equity			232,043				243,159
Noncontrolling interests			3,798				3,631
Total equity			235,841				246,790
Total liabilities and equity		$	424,926				371,257

See accompanying notes to condensed consolidated and combined financial statements.

CAMPUS CREST COMMUNITIES, INC. AND
CAMPUS CREST COMMUNITIES PREDECESSOR
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
		Campus Crest				Campus Crest				Campus Crest				Campus Crest
		Communities,				Communities				Communities,				Communities
		Inc.				Predecessor				Inc.				Predecessor
Revenues:
Student housing rental		$	13,019				12,308				26,171				24,443
Student housing services			538				584				976				1,146
Development, construction and management services			11,333				15,081				21,617				30,864
Total revenues			24,890				27,973				48,764				56,453
Operating expenses:
Student housing operations			6,356				6,907				12,824				13,301
Development, construction and management services			10,611				14,029				19,836				28,644
General and administrative			1,722				1,234				3,670				2,618
Ground leases			52				47				104				94
Depreciation and amortization			5,209				4,667				10,366				9,429
Total operating expenses			23,950				26,884				46,800				54,086
Equity in loss of unconsolidated entities			(340	)			(114	)			(635	)			(194	)
Operating income			600				975				1,329				2,173
Nonoperating income (expense):
Interest expense			(1,360	)			(6,217	)			(2,735	)			(10,686	)
Change in fair value of interest rate derivatives			141				155				337				178
Other income			55				12				154				45
Total nonoperating expenses			(1,164	)			(6,050	)			(2,244	)			(10,463	)
Loss before income taxes			(564	)			(5,075	)			(915	)			(8,290	)
Income tax expense			(77	)			—				(200	)			—
Net loss			(641	)			(5,075	)			(1,115	)			(8,290	)
Net loss attributable to noncontrolling interests			(3	)			(2,913	)			(5	)			(5,025	)
Net loss attributable to Campus Crest Communities, Inc. and Predecessor		$	(638	)			(2,162	)			(1,110	)			(3,265	)
Net loss per share attributable to Campus Crest Communities, Inc.:
Basic and diluted		$	(0.02	)							(0.04	)
Weighted-average common shares outstanding:
Basic and diluted			30,721								30,712
Distributions per common share		$	(0.16	)							(0.32	)

See accompanying notes to condensed consolidated and combined financial statements.

CAMPUS CREST COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
AND COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

																						Total
																						Campus Crest
																		Accumulated				Communities,
		Number of								Additional				Accumulated				Other				Inc.
		Common				Common				Paid-In				Deficit and				Comprehensive				Stockholders’				Noncontrolling				Total
		Shares				Stock				Capital				Distributions				Loss				Equity				Interests				Equity
Balance, December 31, 2010			30,682			$	307				248,515				(5,491	)			(172	)			243,159				3,631				246,790
Distributions			—				—				—				(9,820	)			—				(9,820	)			(140	)			(9,960	)
Issuance of restricted stock			17				—				—				—				—				—				—				—
Amortization of restricted stock awards and OP units			—				—				168				—				—				168				312				480
Costs related to initial public offering			—				—				(134	)			—				—				(134	)			—				(134	)
Comprehensive loss:
Change in fair value of interest rate derivatives			—				—				—				—				(220	)			(220	)			—				(220	)
Net loss			—				—				—				(1,110	)			—				(1,110	)			(5	)			(1,115	)
Total comprehensive loss																															(1,335	)
Balance, June 30, 2011			30,699			$	307				248,549				(16,421	)			(392	)			232,043				3,798				235,841

See accompanying notes to condensed consolidated and combined financial statements.

CAMPUS CREST COMMUNITIES, INC. AND
CAMPUS CREST COMMUNITIES PREDECESSOR
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Six Months Ended
		June 30,
		2011				2010
		Campus Crest				Campus Crest
		Communities,				Communities
		Inc.				Predecessor
Operating activities:
Net loss		$	(1,115	)			(8,290	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			10,366				9,429
Amortization of deferred financing costs			558				318
Accretion of interest expense			—				1,376
Bad debt expense			555				304
Change in fair value of interest rate derivatives			(337	)			(2,893	)
Equity in loss of unconsolidated entities			635				194
Compensation expense related to share based payments			125				—
Changes in operating assets and liabilities:
Restricted cash and investments			1,479				(393	)
Student receivables			(264	)			(60	)
Construction billings			(4,737	)			527
Accounts payable and accrued expenses			4,220				6,586
Other			(86	)			(4,359	)
Net cash provided by operating activities			11,399				2,739
Investing activities:
Investments in development in process			(40,259	)			(694	)
Investments in student housing properties			(756	)			(1,766	)
Investments in unconsolidated entities			(3,115	)			(202	)
Distributions from unconsolidated entities			5,082				—
Purchase of corporate fixed assets			(28	)			—
Net cash used in investing activities			(39,076	)			(2,662	)
Financing activities:
Payment of offering costs			(134	)			—
Proceeds from construction loans			11,724				497
Proceeds from lines of credit and other debt			32,000				2,290
Principal payments on construction loans			—				(225	)
Payments on lines of credit and other debt			—				(47	)
Debt issuance costs			(553	)			—
Contributions from owner of Predecessor			—				241
Contributions from noncontrolling interests of Predecessor			—				405
Distributions to owner of Predecessor			—				(1,131	)
Distributions to noncontrolling interests of Predecessor			—				(1,955	)
Distributions to stockholders			(8,808	)			—
Distributions to noncontrolling interests			(125	)			—
Net cash provided by financing activities			34,104				75
Net change in cash and cash equivalents			6,427				152
Cash and cash equivalents at beginning of period			2,327				2,902
Cash and cash equivalents at end of period		$	8,754				3,054
Supplemental disclosure of cash flow information:
Interest paid		$	2,928				7,604
Income taxes paid		$	—				—
Non-cash investing and financing activity:
Changes in payables related to distributions to stockholders		$	1,012				—
Changes in payables related to distributions to noncontrolling interests		$	15				—
Change in payables related to capital expenditures		$	16,387				661
Accrued costs related to investments in uncombined entities		$	—				225
Contribution of development in process to unconsolidated entity		$	7,666				—

See accompanying notes to condensed consolidated and combined financial statements.

CAMPUS CREST COMMUNITIES, INC. AND
CAMPUS CREST COMMUNITIES PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. Organization and Description of Business

          Campus Crest Communities, Inc. (along with its subsidiaries, the “Company,” “we,” “us” or “our”) is engaged in the business of developing, constructing, owning and managing high-quality, purpose-built student housing properties in the United States. The Company was incorporated in the State of Maryland on March 1, 2010. Campus Crest Communities Predecessor (the “Predecessor”) is not a legal entity, but rather a combination of certain vertically integrated operating companies under common ownership. The Predecessor reflects the historical combination of all facets of the vertically integrated business operations of the student housing related entities of the Company prior to its ownership of these entities.

          On October 19, 2010, the Company completed an initial public offering (the “Offering”) of 28,333,333 shares of its common stock. On November 18, 2010, underwriters of the Offering closed on their option to purchase an additional 2,250,000 shares of common stock to cover the overallotment option granted by the Company to its underwriters. Total Offering-related proceeds to the Company as a result of both of these transactions totaled approximately $382.3 million. Total Offering-related expenses were approximately $31.9 million and consisted of the underwriting discount and other expenses payable by the Company.

          As a result of the Offering and certain formation transactions entered into in connection therewith (the “Formation Transactions”), the Company currently owns the sole general partner interest and limited partner interests in Campus Crest Communities Operating Partnership, LP (the “Operating Partnership”). As part of the Formation Transactions, the owner of the Predecessor and certain third-party investors were granted limited partnership interests in the Operating Partnership (“OP units”). The exchange of entities or interests therein for OP units was accounted for as a reorganization of entities under common control. As a result, the Company’s assets and liabilities are reflected at their historical cost basis.

          The Company elected and qualified to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2010. As a REIT, the Company generally is not subject to U.S. federal income tax on taxable income that it distributes currently to its stockholders.

          The following tables illustrate the number of properties in which the Company has interests, both operating and under construction, at June 30, 2011 and December 31, 2010:

		June 30, 2011
		Properties				Properties				Effective ownership
		in operation				under construction(2)				percentage
Consolidated entities			21				4				100	%
Unconsolidated entities (1)			6				2				20 — 49.9	%
Total			27				6

		December 31, 2010
		Properties				Properties				Effective ownership
		in operation				under construction(2)				percentage
Consolidated entities (1)			21				6				100	%
Unconsolidated entities			6				—				49.9	%
Total			27				6

2. Summary of Significant Accounting Policies

Basis of Presentation

          The accompanying unaudited condensed consolidated and combined financial statements of the Company and the Predecessor, respectively, have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and instructions to Form 10-Q. They do not include all the information and footnotes required by U. S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the condensed consolidated and combined financial statements for these interim periods have been included.

          The condensed consolidated financial statements of the Company include the financial position, results of operations and cash flows of the Company, the Operating Partnership and subsidiaries of the Operating Partnership. Third-party equity interests in the Operating Partnership are reflected as noncontrolling interests in the condensed consolidated financial statements. The condensed combined financial statements of the Predecessor reflect the Predecessor and its subsidiaries, including ventures in which the Predecessor had a controlling interest. Interests in combined entities held by an entity other than the Predecessor are reflected as noncontrolling interests in the condensed combined financial statements. The Company and Predecessor also have ownership interests in unconsolidated real estate ventures which have ownership in several property owning entities that are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.

          The Company, which was incorporated on March 1, 2010, had no operations for the period from its formation through October 18, 2010, as its primary purpose upon formation was to facilitate completion of the Offering and, upon completion, continue the operations of the Predecessor. Since the Predecessor’s combined results of operations reflect the operations of the Company prior to its ownership of the entities which conduct these operations, the Predecessor’s condensed combined results of operations have been prepared and presented for the three and six months ended June 30, 2010.

          The unaudited interim condensed consolidated and combined financial statements should be read in conjunction with the Company’s and the Predecessor’s audited consolidated and combined financial statements, respectively, and accompanying notes for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”). The results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or the full year.

Use of Estimates

          The preparation of consolidated and combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant assumptions and estimates are used by management in recognizing construction and development revenue under the percentage of completion method, useful lives of student housing properties, valuation of investment in real estate, allocation of purchase price to newly acquired student housing properties, fair value of financial assets and liabilities, including derivatives, and allowance for doubtful accounts. It is at least reasonably possible that these estimates could change in the near term.

Investment in Real Estate

          Investment in real estate is recorded at historical cost. Major improvements that extend the life of an asset are capitalized and depreciated over a period equal to the shorter of the life of the improvement or the remaining useful life of the asset. The cost of ordinary repairs and maintenance are charged to expense when incurred. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:

Buildings		40 years
Improvements		20 years
Furniture, fixtures and equipment		3-10 years

          The cost of buildings and improvements includes all pre-development, entitlement and project costs directly associated with the development and construction of a real estate project, which include interest, property taxes and the amortization of deferred financing costs recognized while the project is under construction. Additionally, the Company capitalizes certain internal costs related to the development and construction of its student housing properties. All costs are capitalized as development in process until the asset is ready for its intended use, which is typically upon receipt of a certificate of occupancy. Upon completion, costs are transferred into the applicable asset category and depreciation commences. Interest totaling approximately $0.4 million and $0.1 million was capitalized during the three months ended June 30, 2011 and 2010, respectively, and approximately $0.8 million and $0.1 million was capitalized during the six months ended June 30, 2011 and 2010, respectively.

          Pre-development costs are capitalized until such time that management believes it is no longer probable that a contract will be executed for the acquisition of property and/or construction will commence. Because we frequently incur pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, we bear the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or we are unable to successfully obtain the required permits and authorizations. As such, management evaluates the status of projects where we have not yet acquired the target property or where we have not yet commenced construction on a periodic basis and writes off any pre-development costs related to projects whose current status indicates the acquisition or commencement of construction is not probable. Such write-offs are included within operating expenses in the consolidated and combined statements of operations. As of June 30, 2011 and December 31, 2010, we deferred approximately $1.9 million and $0.9 million, respectively, in pre-development costs related to development projects that have not yet been acquired or for which construction has not commenced. Such costs are included in development in process on the accompanying condensed consolidated balance sheets. Also included in development in process on the accompanying condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010 are approximately $72.2 million and $23.3 million, respectively, of costs related to projects for which construction is in process or land has been acquired.

          Management assesses whether there has been impairment in the value of our investment in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of investment in real estate is measured by a comparison of the carrying amount of a student housing property to the estimated future undiscounted cash flows expected to be generated by the property. Impairment is recognized when estimated future undiscounted cash flows, including proceeds from disposition, are less than the carrying value of the property. The estimation of future undiscounted cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions. If such conditions change, then an adjustment reducing the carrying value of our long-lived assets could occur in the future period in which conditions change. To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to operating earnings. Fair value is determined based upon the discounted cash flows of the property, quoted market prices or independent appraisals, as considered necessary.

Property Acquisitions

          The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values. Fair value estimates are based on information obtained from independent appraisals, other market data, information obtained during due diligence, and information related to the marketing and leasing at the specific property. The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant. As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates. Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy and costs to execute similar leases. Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, net of variable operating expenses. The value of in-place leases is amortized on a straight-line basis over the remaining initial term of the respective leases, generally less than one year. Amortization expense was approximately $0.4 million and $0 for the

three months ended June 30, 2011 and 2010, respectively, and approximately $0.8 million and $0 for the six months ended June 30, 2011 and 2010, respectively. The amortization of in-place leases is included in depreciation and amortization expense in the accompanying condensed consolidated statements of operations. The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of lease renewals.

Deferred Financing Costs

          We defer costs incurred in obtaining financing and amortize the costs over the terms of the related loans using the effective interest method. Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to earnings. Deferred financing costs, net of amortization, are included in other assets on the accompanying condensed consolidated balance sheets. Amortization of deferred financing costs, which is included in interest expense in the accompanying condensed consolidated and combined statements of operations, approximated $0.3 million and $0.2 million for the three months ended June 30, 2011 and 2010, respectively, and approximated $0.6 million and $0.3 million for the six months ended June 30, 2011 and 2010, respectively.

Noncontrolling Interests

          Noncontrolling interests represent the portion of equity in the Company’s consolidated subsidiaries which are not attributable to our stockholders. Accordingly, noncontrolling interests are reported as a component of equity in the accompanying condensed consolidated balance sheets but separate from stockholders’ equity. On the condensed consolidated and combined statements of operations, operating results are reported at their consolidated and combined amounts, including both the amount attributable to us and to noncontrolling interests. See note 5.

Real Estate Ventures

          We hold interests in all properties, both under development and in operation, through interests in both consolidated and unconsolidated real estate ventures. The Company assesses its investments in real estate ventures in accordance with applicable guidance under U.S. GAAP to determine if a venture is a Variable Interest Entity (“VIE”). We consolidate entities that are defined as VIEs and for which we are determined to be the primary beneficiary. In instances where we are not the primary beneficiary, we do not consolidate the entity for financial reporting purposes. For entities that are not defined as VIEs, management first considers whether we are the general partner or a limited partner (or the equivalent in such investments which are not structured as partnerships). We consolidate entities where: (i) we are the general partner (or the equivalent); and (ii) the limited partners (or the equivalent) in such investments do not have rights which would preclude control and, therefore, consolidation for financial reporting purposes.

          For entities where we are the general partner (or the equivalent) but do not control the real estate venture, as the other partners (or the equivalent) hold substantive participating rights, we use the equity method of accounting. For entities where we are a limited partner (or the equivalent), management considers factors such as ownership interest, voting control, authority to make decisions, and contractual and substantive participating rights of the partners (or the equivalent) to determine if the presumption that the general partner controls the entity is overcome. In instances where these factors indicate we control the entity, we consolidate the entity; otherwise, we record our investment using the equity method of accounting.

          Under the equity method, investments are initially recognized on the balance sheet at cost and are subsequently adjusted to reflect our proportionate share of net earnings or losses of the entity, distributions received, contributions, and certain other adjustments, as appropriate. When circumstances indicate there may have been a loss in value of an equity method investment, we evaluate the investment for impairment by estimating our ability to recover the investment from future expected discounted cash flows. If we determine the loss in value is other than temporary, we recognize an impairment charge to reflect the investment at fair value.

Student Housing Revenue

          Students are required to execute lease contracts with payment schedules that vary from annual to monthly payments. We recognize revenues on a straight-line basis over the term of the lease contracts. Generally, each executed contract is required to be accompanied by a signed parental guaranty. Amounts received in advance of the occupancy period are recorded as deferred revenues and included in other liabilities on the accompanying condensed consolidated balance sheets. Service revenue is recognized when earned.

Development, Construction and Management Services

          Development and construction service revenue is recognized using the percentage of completion method, as determined by construction costs incurred relative to total estimated construction costs. Any changes in significant judgments and/or estimates used in determining construction and development revenue could significantly change the timing or amount of construction and development service revenue recognized.

          Development and construction service revenue is recognized for contracts with entities we do not consolidate. For projects where the revenue is based on a fixed price, any cost overruns incurred during construction, as compared to the original budget, will reduce the net profit ultimately recognized on those projects. Profit derived from these projects is eliminated to the extent of the Company’s ownership interest in the unconsolidated entity. Any incentive fees, net of the impact of our ownership interest if the entity is unconsolidated, are recognized when the project is complete and performance has been agreed upon by all parties, or when performance has been verified by an independent third party. If total development or construction costs at completion exceed the fixed price set forth within the related contract, such cost overruns are recorded as additional investment in the unconsolidated entity.

          Management fees, net of elimination to the extent of our ownership interest in an unconsolidated entity, are recognized when earned in accordance with each management contract for entities we do not consolidate. Incentive management fees are recognized when the incentive criteria are met.

Allowance for Doubtful Accounts

          Allowances for student receivables are established when management determines that collections of such receivables are doubtful. Balances are considered past due when payment is not received on the contractual due date. When management has determined that receivables are uncollectible, they are written off against the allowance for doubtful accounts.

Derivative Instruments and Hedging Activities

          In certain instances, interest rate cap agreements and interest rate swap agreements are used to manage floating interest rate exposure with respect to amounts borrowed, or forecasted to be borrowed, under credit facilities. These contracts effectively exchange existing or forecasted obligations to pay interest based on floating rates for obligations to pay interest based on fixed rates.

          All derivative instruments are recognized as either assets or liabilities on the condensed consolidated balance sheets at their respective fair values. Changes in fair value are recognized either in earnings or as accumulated other comprehensive income (loss), depending on whether the derivative has been designated as a fair value or cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure being hedged, and how effective the derivative is at offsetting movements in underlying exposure. The Company discontinues hedge accounting when: (i) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; (iii) it is no longer probable that the forecasted transaction will occur; or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate. In situations in which hedge accounting is not initially designated, or is discontinued and a derivative remains outstanding, gains and losses related to changes in the fair value of the derivative instrument are recorded in current period earnings as a component of the change in fair value of interest rate derivatives line item on the accompanying condensed consolidated and combined statements of operations. Also included within this line item are any required monthly settlements on interest rate swaps, as well as all cash settlements paid. The Company’s counterparties are major financial institutions.

Fair Value of Financial Instruments

          Financial instruments consist primarily of cash, cash equivalents, student receivables, interest rate caps, interest rate swaps, accounts payable, mortgages, construction notes payable and lines of credit. The carrying value of cash, cash equivalents, student receivables and accounts payable are representative of their respective fair values due to the short-term nature of these instruments. The estimated fair values of mortgages, construction notes payable and lines of credit are determined by comparing current borrowing rates and risk spreads offered in the market to the stated interest rates and spreads on our current mortgages and construction notes payable. The fair values of mortgages, construction notes payable and lines of credit are disclosed in note 9.

          The estimated fair values of interest rate caps and swaps are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves, implied volatilities and the creditworthiness of the swap counterparties.

          Fair value guidance for financial assets and liabilities which are recognized and disclosed in the consolidated financial statements on a recurring basis and nonfinancial assets on a nonrecurring basis establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

          Level 1—Observable inputs, such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.

          Level 2—Other inputs that are observable directly or indirectly, such as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

          Level 3—Unobservable inputs for which there is little or no market data and which the Company makes its own assumptions about how market participants would price the asset or liability.

          Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

          Interest rate caps and interest rate swaps measured at fair value at June 30, 2011 and December 31, 2010 are as follows (amounts in thousands):

		Quoted Prices in
		Active Markets for				Significant Other				Significant
		Identical Assets and				Observable Inputs				Unobservable				Balance at
		Liabilities (Level 1)				(Level 2)				Inputs (Level 3)				End of Period
Other assets:
June 30, 2011 — Interest rate caps		$	—				29				—				29
December 31, 2010 — Interest rate caps		$	—				103				—				103
Other liabilities:
June 30, 2011 — Interest rate swaps		$	—				(261	)			—				(261	)
December 31, 2010 — Interest rate swaps		$	—				(452	)			—				(452	)

Commitments and Contingencies

          Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Income Taxes

          The Company elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code commencing with the Company’s taxable year ended on December 31, 2010. The Company’s qualification as a REIT depends upon its ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code relating to, among other things, the sources of the Company’s gross income, the composition and values of its assets, its distribution levels and the diversity of ownership of its stock. The Company believes that it is organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code and that the Company’s intended manner of operation will enable it to meet the requirements for qualification and taxation as a REIT.

          As a REIT, the Company generally will not be subject to U.S. federal and state income tax on taxable income that it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company will be subject to U.S. federal income tax at regular corporate rates and generally will be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which it lost its REIT qualification. Accordingly, our failure to qualify as a REIT could materially and adversely affect us, including our ability to make distributions to our stockholders in the future. Even if the Company qualifies as a REIT, we will be subject to some U.S. federal, state and local taxes on our income or property and the income of our taxable REIT subsidiaries will be subject to taxation at normal corporate rates.

          The Company wholly owns four taxable REIT subsidiary (“TRS”) entities that manage the Company’s non-REIT activities and each is subject to federal, state and local income and franchise taxes. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those temporary differences are expected to reverse. For the three and six months ended June 30, 2011, we recorded a federal and state income tax provision related to our TRS subsidiaries of approximately $0.1 million and $0.2 million, respectively.

          The combined entities of the Predecessor are all limited liability companies or limited partnerships and elected to be taxed as partnerships for federal income tax purposes. As a result, no provision for income taxes has been recorded in the accompanying condensed combined financial statements of the Predecessor as all income and losses of the Predecessor are allocated to the owners for inclusion in their respective tax returns.

Comprehensive Loss

          Comprehensive loss includes net loss and other comprehensive income (loss), which consists of unrealized gains (losses) on derivative instruments. Comprehensive loss is presented in the accompanying condensed consolidated statement of changes in equity and comprehensive loss, and accumulated other comprehensive income (loss) is displayed as a separate component of stockholders’ equity.

Share-Based Compensation

          The Company awards restricted stock and restricted OP unit awards that vest in equal annual installments over either a three or five year period. A restricted stock or OP unit award is an award of the Company’s common stock or OP units that are subject to restrictions on transferability and other restrictions determined by the Company’s compensation committee at the date of grant. A grant date is established for a restricted stock award or restricted OP unit award upon approval from the Company’s compensation committee and board of directors. The restrictions may lapse over a specified period of employment or the satisfaction of pre-established criteria as the Company’s compensation committee may determine. Except to the extent restricted under the award agreement, a participant awarded restricted shares or OP units has all the rights of a stockholder or OP unit holder as to these shares or units,

including the right to vote the shares and the right to receive dividends or distributions on the shares or units. The fair value of the award is determined based on the market value of the Company’s common stock on the grant date and is recognized on a straight-line basis over the applicable vesting period for the entire award with cost recognized at the end of any period being at least equal to the shares that were then vested. During the three and six months ended June 30, 2011, approximately $0.3 million and $0.5 million, respectively, of compensation expense was recognized in the accompanying condensed consolidated financial statements related to the vesting of restricted stock and restricted OP units. See note 10.

Recent Accounting Pronouncements

          In June 2011, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance which eliminates the option to report other comprehensive income (loss) and its components in the statement of changes in equity. Entities will have the option to present the components of net income (loss) and other comprehensive income (loss) in either a single continuous statement or two separate but consecutive statements. This guidance requires retrospective application and is effective for annual periods, and interim periods contained within those annual periods, beginning after December 31, 2011. We have not yet decided on the format that will be used in future periods. The standard will not change the recognition or measurement of net income (loss) or comprehensive income (loss).

          In May 2011, the FASB issued new accounting guidance which provides clarification about how fair value should be applied where it is used or permitted to be used under U.S. GAAP. This guidance requires prospective application and is effective for interim and annual periods beginning after December 15, 2011. We are currently evaluating what impact, if any, its adoption will have on our consolidated financial statements.

          In July 2010, the FASB issued new accounting guidance requiring additional disclosure related to the credit quality of certain receivables and the allowance for losses. It is effective for our annual reporting period ending December 31, 2011. We are currently evaluating what impact, if any, its adoption will have on our consolidated financial statements.

          In January 2010, the FASB issued new accounting guidance requiring additional disclosure related to the fair value of financial instruments. Transfers between the three levels within the fair value hierarchy, as well as changes in an entity’s Level 3 fair value instruments, require additional disclosure. This guidance was effective for us beginning on January 1, 2011. The adoption did not have a material impact on our consolidated financial statements.

3. Earnings per Share

          Basic earnings per share is computed by dividing net loss attributable to the Company’s stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. All unvested share based payment awards are included in the computation of basic earnings per share. Diluted earnings per share reflect common shares issuable from the assumed conversion of OP units and restricted OP units and other potentially dilutive securities.

          A reconciliation of the numerators and denominators for basic and diluted earnings per share computations is not required as the Company reported a net loss for the three and six months ended June 30, 2011, and therefore the effect of the inclusion of all potentially dilutive securities would be anti-dilutive when computing diluted earnings per share. Therefore, the computation of both basic and diluted earnings per share is the same. For the three and six months ended June 30, 2011, 435,593 OP units and restricted OP units were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive.

          At June 30, 2011 and December 31, 2010, accrued dividends and OP unit distributions of approximately $5.0 million and $4.0 million, respectively, are recorded in accounts payable and accrued expenses on the Company’s condensed consolidated balance sheets.

4. Student Housing Properties

          Student housing properties, net, consisted of the following (amounts in thousands):

		June 30,				December 31,
		2011				2010
Land		$	26,369				26,369
Buildings and improvements			304,709				304,447
Furniture, fixtures and equipment			42,424				41,930
			373,502				372,746
Accumulated depreciation			(66,943	)			(57,463	)
		$	306,559				315,283

5. Noncontrolling Interests

Company Noncontrolling Interests — Operating Partnership Units

          Certain limited partners in the Operating Partnership, which total approximately 1.5% of the limited partnership interest in the Operating Partnership, hold their ownership units through entities which are not affiliates or subsidiaries of the Company. OP units are exchangeable into cash or, at the Company’s election, an equal number of shares of the Company’s common stock. OP units have the same economic characteristics as shares of the Company’s common stock, as they effectively participate equally in the net income and distributions of the Operating Partnership.

          The holders of OP Units have the right to require the Operating Partnership to redeem part or all of the OP Units for cash based upon the fair market value of an equivalent number of shares of the Company’s common stock at the time of redemption. However, the Company may, in its sole discretion, elect to redeem the OP Units in exchange for common stock. Based on this assessment, which includes the evaluation of terms in the agreements related to redemption provisions, the Company has classified these noncontrolling interests as a component of permanent equity on the accompanying condensed consolidated balance sheets. The share of net loss allocated to these OP units is reported on the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2011 as net loss attributable to noncontrolling interests. For the three and six months ended June 30, 2011, no OP units were redeemed.

Predecessor Noncontrolling Interests — Third-Party Venture Partners

          Prior to completion of the Offering, the Predecessor combined real estate ventures which wholly owned 20 operating student housing properties. Each of these real estate ventures had third-party partners other than the Predecessor or its affiliates. The third-party owners’ share of the income or loss of the entities is reported on the accompanying condensed combined statements of operations for the three and six months ended June 30, 2010 as net loss attributable to noncontrolling interests.

6. Property Acquisition

          On October 19, 2010, we acquired from Harrison Street Real Estate, a real estate private equity firm (“HSRE”), the remaining interest in Campus Crest at San Marcos, LLC, which owns The Grove at San Marcos. Prior to this transaction, The Grove at San Marcos was wholly owned by a real estate venture, HSRE-Campus Crest I, LLC, in which the Company and HSRE are members and had 10% and 90% member interests, respectively (see note 8). Prior to the acquisition of this interest, the Company accounted for its ownership interest in The Grove at San Marcos under the equity method of accounting. Subsequent to its acquisition of this interest, the Company consolidated the results of operations of The Grove at San Marcos. In connection with the accounting for its purchase of the remaining interest in the property, the Company recorded a gain of approximately $0.6 million during the period from October 19, 2010 through December 31, 2010 related to the remeasurement of its previously held equity interest in The Grove at San Marcos at the acquisition date.

7. Sales of Interests in Properties and Real Estate Ventures

          In November 2009, we sold 90% of our interest in The Grove at Milledgeville to an affiliate of HSRE. We received proceeds from the sale of approximately $3.9 million. Concurrent with the Offering and Formation Transactions, the Company repurchased the 90% interest in The Grove at Milledgeville, with the result that the Company owned 100% of The Grove at Milledgeville on October 19, 2010. Because of our continuing involvement in this asset and because this transaction had financing elements, we did not record this transaction as a sale for financial reporting purposes. The proceeds were recorded as a loan and the Predecessor continued to combine the balance sheet and results of operations of Campus Crest at Milledgeville, LLC, the entity which owns the property, through October 18, 2010. The difference between the sale proceeds and contracted repurchase price was accreted and recorded as interest expense in the Predecessor’s condensed combined statement of operations. For the three and six months ended June 30, 2010, interest expense related to this transaction totaled approximately $0.6 million and $1.0 million, respectively.

          In March 2010, we sold 99% of our interest in HSRE-Campus Crest I, LLC, which represented a 9.9% interest in the underlying venture, to an affiliate of HSRE. Total proceeds received were approximately $2.25 million. Concurrent with the Offering and Formation Transactions, the Company repurchased the 9.9% interest in HSRE-Campus Crest I, LLC. As a result, the transaction was accounted for as a financing. The difference between the proceeds received and the contracted repurchase amount was accreted and recorded as interest expense in the Predecessor’s condensed combined statement of operations. For the three and six months ended June 30, 2010, interest expense related to this transaction totaled approximately $0.3 million and $0.4 million, respectively.

          In September 2010, we sold 99.9% of our interest in The Grove at Carrollton to an affiliate of HSRE. We received proceeds from the sale of approximately $0.8 million. Concurrent with the Offering and Formation Transactions, the Company repurchased the 99.9% interest in The Grove at Carrollton, with the result that the Company owned 100% of The Grove at Carrollton on October 19, 2010. Because of our continuing involvement in this asset and because the transaction had financing elements, we did not record this transaction as a sale for financial reporting purposes. The proceeds were recorded as a loan and the Predecessor continued to combine the balance sheet and results of operations of Campus Crest at Carrollton, LLC, the entity which owns the property, through October 18, 2010. The difference between the sale proceeds and contracted repurchase price was accreted and recorded as an interest expense in the Predecessor’s condensed combined statement of operations.

8. Investment in Unconsolidated Entities

          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 June 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 June 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 on January 20, 2011. HSRE will contribute up to $50 million to the venture, which will develop and operate 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 June 30, 2011. HSRE IV is currently constructing two new student housing properties with completion targeted for the 2011-2012 academic year, The Grove at Denton and The Grove at Valdosta. The Company made contributions to HSRE IV of approximately $3.0 million during the six months ended June 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 June 30, 2011 and 2010, respectively, and approximately $(0.6) million and $(0.2) million for

the six months ended June 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 $11.3 million and $15.1 million in fees for the three months ended June 30, 2011 and 2010, respectively, and approximately $21.6 million and $30.9 million in fees for the six months ended June 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 $102.7 million and $83.2 million at June 30, 2011 and December 31, 2010, respectively. The ventures’ construction debt matures at various dates between 2011 and 2013.

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

Balance Sheets

						December 31,
		June 30, 2011				2010
Assets:
Student housing properties, net		$	110,690				112,224
Development in process			38,211				—
Other assets			7,231				5,444
Total assets		$	156,132				117,668
Liabilities and owners’ equity:
Construction debt		$	102,717				83,222
Other liabilities			9,561				5,117
Owners’ equity			43,854				29,329
Total liabilities and owners’ equity		$	156,132				117,668
Share of historical owners’ equity		$	14,952				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)			(3,682	)			(3,509	)
Carrying value of investment in unconsolidated entities		$	18,109				13,751

Statements of Operations

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Revenues		$	3,768				2,091				7,509				4,111
Expenses:
Operating expenses			2,139				1,369				4,121				2,672
Interest expense			1,465				931				2,944				1,893
Depreciation and amortization			1,115				794				2,238				1,589
Total expenses			4,719				3,094				9,303				6,154
Net loss		$	(951	)			(1,003	)			(1,794	)			(2,043	)
Company’s and Predecessor’s share of net loss (1)		$	(340	)			(114	)			(635	)			(194	)

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

          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

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.

10. Incentive Plans

          The Company has adopted the 2010 Equity Incentive Compensation Plan (the “Plan”). The Plan permits the grant of incentive awards to executive officers, employees, consultants and non-employee directors of the Company. The aggregate number of awards approved under the Plan is 2,500,000. As of June 30, 2011 and December 31, 2010, 1,968,678 shares and 2,002,236 shares, respectively, were available for issuance under the plan.

Restricted Stock Awards

          Awards to executive officers and employees of the Company vest over a three year period and are subject to restriction based upon employment in good standing with the Company. Awards to non-employee directors of the Company vest over a five year period and are subject to restriction based upon continued service on the Board of Directors of the Company.

          At June 30, 2011, unearned compensation totaled approximately $1.1 million, and will be recorded as expense over the applicable vesting period of three to five years. During the three and six months ended June 30, 2011, stock

compensation expense of approximately $0.1 million and $0.2 million, respectively, was recognized as general and administrative expense in the accompanying condensed consolidated financial statements related to the vesting of restricted stock.

Restricted OP Units

          At June 30, 2011, unearned compensation totaled approximately $1.4 million, and will be recorded over the applicable vesting period of three years. During the three and six months ended June 30, 2011, approximately $0.2 million and $0.3 million, respectively, of compensation cost was recognized in the accompanying condensed consolidated financial statements relating to the vesting of restricted OP units.

          A summary of incentive plan activity as of and for the six months ended June 30, 2011 is as follows:

						Number of
		Number of				Restricted								Weighted Average
		Restricted OP				Common								Grant Date Fair
		Units				Shares				Total				Value
Nonvested balances at December 31, 2010			150,000				98,882				248,882			$	12.50
Granted			—				18,192				18,192			$	10.61
Forfeited			—				(1,413	)			(1,413	)		$	12.50
Nonvested balances at June 30, 2011			150,000				115,661				265,661			$	12.37

11. Derivative Instruments and Hedging Activities

          We use, and expect to continue to use, significant variable rate debt to finance our construction of student housing properties. These debt obligations expose us to variability in cash flows due to fluctuations in interest rates. Management enters into derivative contracts to limit variability for a portion of our interest payments and to manage exposure to interest rate risk. We use derivative financial instruments, specifically interest rate caps and interest rate swaps, for non-trading purposes.

          As of June 30, 2011 and December 31, 2010, the fair value of derivative contracts is recorded within other assets and other liabilities in the accompanying condensed consolidated balance sheets. The effective portion of changes in fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified to earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of changes in fair value of derivatives designated and that qualify as cash flow hedges is recorded in earnings. If a derivative is either not designated as a hedge or if hedge accounting is discontinued, all changes in fair value of the derivative are recorded in earnings.

          The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. We incorporate credit valuation adjustments to appropriately reflect our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees. We consider such nonperformance risk insignificant to the overall determination of fair value.

          The following table is a summary of the terms, estimated fair values and classification on the condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010 of the interest rate derivative contracts we were a party to at June 30, 2011 and December 31, 2010 (dollar amounts in thousands):

Interest Rate																		Estimated Fair
Derivative																		Value at June 30,				Estimated Fair Value at
Instrument		Hedged Item				Notional Amount				Fixed Interest Rate				Maturity Date				2011				December 31, 2010
Cap (1)		30-day LIBOR				$	44,000				2.50	%		January 2011				$	N/A				—
Swap (2)		30-day LIBOR				$	25,488				3.44	%		May 2011					N/A				(337	)
Cap (1)		30-day LIBOR				$	60,500				2.50	%		July 2011					—				N/A
Cap (1)		30-day LIBOR				$	3,126	(3)			1.25	%		April 2013					29				103
Swap (1)		30-day LIBOR				$	3,126	(3)			1.39	%		April 2013					(261	)			(115	)
																		$	(232	)			(349	)

          The table below reflects the effect of interest rate derivative instruments on the condensed consolidated and combined statements of operations for the three and six months ended June 30, 2011 and 2010 (amounts in thousands):

		Location of Gain (Loss)				Three Months Ended								Six Months Ended
		Recognized on Statements				June 30,								June 30,
Derivatives not Designated as Hedging Instruments		of Operations				2011				2010				2011				2010
Interest rate swaps (receive float/pay fixed):
Monthly net settlements — cash settled		Change in fair value of
		interest rate
		derivatives				$	—				(1,359	)			—				(2,715	)
Mark to market adjustments — non-cash		Change in fair value of
		interest
		rate derivatives					141				1,514				337				2,893
Total effect of derivative instruments on the combined statements of operations						$	141				155				337				178

          For the three and six months ended June 30, 2011, approximately $0.2 million was recognized in other comprehensive loss related to the effective portion of the change in fair value of interest rate derivatives designated as cash flow hedges.

12. Segments

          The operating segments in which management assesses performance and allocates resources are student housing operations and development, construction and management services. Our segments reflect management’s resource allocation and performance assessment in making decisions regarding the Company. Our student housing rental and student housing services revenues are aggregated within the student housing operations segment and our third-party services of development, construction and management are aggregated within the development, construction and management services segment.

          The following tables set forth our segment information as of and for the three and six months ended June 30, 2011 and 2010 (amounts in thousands):

		Three Months Ended								Six Months Ended
		June 30,							June 30,
		2011				2010				2011				2010
Student Housing Operations:
Revenues from external customers		$	13,557				12,892				27,147				25,589
Operating expenses			11,441				12,110				23,174				23,738
Operating income			2,116				782				3,973				1,851
Nonoperating expenses			(640	)			(3,897	)			(1,540	)			(7,718	)
Net income (loss)			1,476				(3,115	)			2,433				(5,867	)
Net income (loss) attributable to noncontrolling interests			14				(2,273	)			24				(4,385	)
Net income (loss) attributable to stockholders and owner		$	1,462				(842	)			2,409				(1,482	)
Depreciation and amortization		$	5,148				4,592				10,245				9,280
Total segment assets at end of period		$	408,661								408,661
Development, Construction and Management Services:
Revenues from external customers		$	11,333			$	15,081			$	21,617			$	30,864
Intersegment revenues			35,348				2,371				51,915				4,647
Total revenues			46,681				17,452				73,532				35,511
Operating expenses			42,738				15,815				68,078				32,090
Operating income			3,943				1,637				5,454				3,421
Nonoperating expenses			(223	)			(10	)			(235	)			(31	)
Net income			3,720				1,627				5,219				3,390
Net income attributable to noncontrolling interests			37				—				52				—
Net income attributable to stockholders and owner		$	3,683				1,627				5,167				3,390
Depreciation and amortization		$	22				23				46				46
Total segment assets at end of period		$	13,140								13,140
Reconciliations:
Total segment revenues		$	60,238			$	30,344				100,679			$	61,100
Elimination of intersegment revenues			(35,348	)			(2,371	)			(51,915	)			(4,647	)
Total combined revenues		$	24,890			$	27,973				48,764			$	56,453
Segment operating income		$	6,059				2,419				9,427				5,272
Interest expense			(1,360	)			(6,217	)			(2,735	)			(10,686	)
Change in fair value of interest rate derivatives			141				155				337				178
Net unallocated expenses and eliminations			(5,119	)			(1,330	)			(7,463	)			(2,905	)
Equity in loss of unconsolidated entities			(340	)			(114	)			(635	)			(194	)
Other income			55				12				154				45
Income tax provision			(77	)			—				(200	)			—
Net loss		$	(641	)			(5,075	)			(1,115	)			(8,290	)
Total segment assets		$	421,801								421,801
Unallocated corporate assets and eliminations			3,125								3,125
Total assets		$	424,926								424,926