UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q


(Mark
One)


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


For the
quarterly period ended June 30, 2009


Or


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


For the
transition period
from                     to


Commission
File Number:001-32417


Education
Realty Trust, Inc.


(Exact
name of registrant as specified in its charter)


Maryland
            
            20-1352180(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)530
      Oak Court Drive, Suite 300, Memphis, Tennessee
            
            38117(Address
      of principal executive offices)
            
            (Zip
      Code)Registrant’s
      telephone number, including area code: (901) 259-2500Not
      Applicable(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 x  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 o  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. (Check
one):





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





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




As of
July 17, 2009, the latest practicable date, the Registrant had outstanding
28,522,966 shares of common stock, $.01 par value per share.












EDUCATION REALTY TRUST, INC.


FORM
10-Q


QUARTER
ENDED JUNE 30, 2009


TABLE
OF CONTENTS




PagePART
      I—FINANCIAL INFORMATIONItem 1.
      Financial Statements
              
              
              3Condensed
      Consolidated Balance Sheets of Education Realty Trust, Inc. and
      Subsidiaries as of June 30, 2009 and December 31,
2008
              
              
              3Condensed
      Consolidated Statements of Operations of Education Realty Trust, Inc. and
      Subsidiaries for the six months ended June 30, 2009 and
    2008
              
              
              4Condensed
      Consolidated Statements of Operations of Education Realty Trust, Inc. and
      Subsidiaries for the three months ended June 30, 2009 and
    2008
              
              
              5Condensed
      Consolidated Statements of Changes in Equity of Education Realty Trust,
      Inc. and Subsidiaries for the six months ended June 30, 2009 and the year
      ended December 31, 2008
              
              
              6Condensed
      Consolidated Statements of Cash Flows of Education Realty Trust, Inc. and
      Subsidiaries for the six months ended June 30, 2009 and
    2008
              
              
              7Notes
      to Condensed Consolidated Financial Statements
              
              
              9Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
              
              
              24Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
              
              
              45Item 4.
      Controls and Procedures
              
              
              46PART
      II — OTHER INFORMATIONItem 1.
      Legal Proceedings
              
              
              47Item 1A.
      Risk Factors
              
              
              47Item 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
              
              
              49Item 3.
      Defaults Upon Senior Securities
              
              
              49Item 4.
      Submission of Matters to a Vote of Security Holders
              
              
              50Item 5.
      Other Information
              
              
              50Item 6.
      Exhibits
              
              
              50Signatures
              
              
              51


2





Part
I — Financial Information





Item 1.
Financial Statements.





CONDENSED
CONSOLIDATED BALANCE SHEETS


(Amounts
in thousands, except share and per share data)


(Unaudited)




June
      30, 2009
              
              
              December
      31, 2008ASSETSAssets:Student
      housing properties, net
              
              $
              722,196
              
              
              $
              731,400Student
      housing properties – held for sale
              
              
              —
              
              
              
              2,107Assets
      under development
              
              
              29,248
              
              
              
              6,572Corporate
      office furniture and equipment, net
              
              
              1,259
              
              
              
              1,465Cash
      and cash equivalents
              
              
              4,070
              
              
              
              9,003Restricted
      cash
              
              
              6,262
              
              
              
              5,595Student
      contracts receivable, net
              
              
              542
              
              
              
              533Receivable
      from affiliate
              
              
              15
              
              
              
              25Management
      fee receivable from third party
              
              
              265
              
              
              
              401Goodwill
      and other intangibles, net
              
              
              3,090
              
              
              
              3,111Note
      receivable from unconsolidated joint venture
              
              
              827
              
              
              
              834Other
      assets
              
              
              14,667
              
              
              
              16,601Total
      assets
              
              $
              782,441
              
              
              $
              777,647LIABILITIES
      AND EQUITYLiabilities:Mortgage
      and construction loans, net of unamortized
premium/discount
              
              $
              450,493
              
              
              $
              442,259Revolving
      line of credit
              
              
              29,600
              
              
              
              32,900Accounts
      payable
              
              
              6,031
              
              
              
              303Accrued
      expenses
              
              
              9,895
              
              
              
              9,144Accrued
      interest
              
              
              2,060
              
              
              
              1,158Deferred
      revenue
              
              
              7,730
              
              
              
              9,954Total
      liabilities
              
              
              505,809
              
              
              
              495,718Commitments
      and contingencies (see Note 6)
              
              
              —
              
              
              
              —Redeemable
      noncontrolling interests
              
              
              11,325
              
              
              
              11,751Equity:Education
      Realty Trust, Inc. stockholders’ equity:Common
      stock, $0.01 par value, 200,000,000 shares authorized, 28,501,849 and
      28,475,855 shares issued and outstanding at June 30, 2009 and
      December 31, 2008, respectively
              
              
              285
              
              
              
              285Preferred
      shares, $0.01 par value, 50,000,000 shares authorized, no shares issued
      and outstanding
              
              
              —
              
              
              
              —Additional
      paid-in capital
              
              
              302,876
              
              
              
              308,356Accumulated
      deficit
              
              
              (40,717
              )
              
              
              (41,381
              )Total
      Education Realty Trust, Inc. stockholders’ equity
              
              
              262,444
              
              
              
              267,260Noncontrolling
      interest
              
              
              2,863
              
              
              
              2,918Total
      equity
              
              
              265,307
              
              
              
              270,178Total
      liabilities and equity
              
              $
              782,441
              
              
              $
              777,647




See
accompanying notes to the condensed consolidated financial
statements.




3




CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts
in thousands, except share and per share data)


(Unaudited)




Six
      months
              
              
              Six
      monthsended
              
              
              endedJune
      30,
              
              
              June
      30,2009
              
              
              2008Revenues:Student
      housing leasing revenue
              
              $
              56,221
              
              
              $
              52,944Student
      housing food service revenue
              
              
              1,059
              
              
              
              1,196Other
      leasing revenue
              
              
              —
              
              
              
              6,945Third-party
      development services
              
              
              2,716
              
              
              
              3,008Third-party
      management services
              
              
              1,632
              
              
              
              1,807Operating
      expense reimbursements
              
              
              4,226
              
              
              
              5,140Total
      revenues
              
              
              65,854
              
              
              
              71,040Operating
      expenses:Student
      housing leasing operations
              
              
              25,086
              
              
              
              25,031Student
      housing food service operations
              
              
              1,013
              
              
              
              1,128General
      and administrative
              
              
              7,835
              
              
              
              7,850Depreciation
      and amortization
              
              
              14,274
              
              
              
              14,769Reimbursable
      operating expenses
              
              
              4,226
              
              
              
              5,140Total
      operating expenses
              
              
              52,434
              
              
              
              53,918Operating
      income
              
              
              13,420
              
              
              
              17,122Nonoperating
      expenses:Interest
      expense
              
              
              12,502
              
              
              
              12,213Amortization
      of deferred financing costs
              
              
              519
              
              
              
              487Interest
      income
              
              
              (154
              )
              
              
              (190
              )Gain
      on extinguishment of debt
              
              
              (830
              )
              
              
              —Total
      nonoperating expenses
              
              
              12,037
              
              
              
              12,510Income
      from continuing operations before equity in earnings (losses) of
      unconsolidated entities, income taxes, redeemable noncontrolling interests
      and discontinued operations
              
              
              1,383
              
              
              
              4,612Equity
      in earnings (losses) of unconsolidated entities
              
              
              146
              
              
              
              (27
              )Income
      from continuing operations before income taxes, redeemable noncontrolling
      interests and discontinued operations
              
              
              1,529
              
              
              
              4,585Income
      tax expense
              
              
              690
              
              
              
              173Income
      from continuing operations before redeemable noncontrolling
      interests
              
              
              839
              
              
              
              4,412Income
      attributable to redeemable noncontrolling interests
              
              
              138
              
              
              
              121Income
      from continuing operations
              
              
              701
              
              
              
              4,291Loss
      from discontinued operations
              
              
              (18
              )
              
              
              (34
              )Net
      income
              
              
              683
              
              
              
              4,257Less:
      Net income attributable to the noncontrolling interest
              
              
              19
              
              
              
              50Net
      income attributable to Education Realty Trust, Inc.
              
              $
              664
              
              
              $
              4,207




Earnings
      per share information:Income
      attributable to Education Realty Trust, Inc. common stockholders per share
      — basic:Continuing
      operations
            
            $
            0.02
            
            
            $
            0.15Discontinued
      operations
            
            
            —
            
            
            
            —Net
      income attributable to Education Realty Trust, Inc. common stockholders
      per share
            
            $
            0.02
            
            
            $
            0.15Income
      attributable to Education Realty Trust, Inc. common stockholders per share
      — diluted:Continuing
      operations
            
            $
            0.02
            
            
            $
            0.14Discontinued
      operations
            
            
            —
            
            
            
            —Net
      income attributable to Education Realty Trust, Inc. common stockholders
      per share
            
            $
            0.02
            
            
            $
            0.14Weighted
      average common shares outstanding – basic
            
            
            28,518,430
            
            
            
            28,510,564Weighted
      average common shares outstanding – diluted
            
            
            29,639,425
            
            
            
            29,656,000Amounts
      attributable to Education Realty Trust, Inc. – common
      stockholders:Income
      from continuing operations, net of tax
            
            $
            682
            
            
            $
            4,240Loss
      from discontinued operations, net of tax
            
            
            (18
            )
            
            
            (33
            )Net
      income
            
            $
            664
            
            
            $
            4,207Distributions
      per common share
            
            $
            0.205
            
            
            $
            0.410




See
accompanying notes to the condensed consolidated financial
statements.




4





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts
in thousands, except share and per share data)


(Unaudited)




Three
      months
            
            
            Three
      monthsended
            
            
            endedJune
      30,
            
            
            June
      30,2009
            
            
            2008Revenues:Student
      housing leasing revenue
            
            $
            27,501
            
            
            $
            26,713Student
      housing food service revenue
            
            
            466
            
            
            
            541Other
      leasing revenue
            
            
            —
            
            
            
            5,000Third-party
      development services
            
            
            1,259
            
            
            
            1,221Third-party
      management services
            
            
            723
            
            
            
            832Operating
      expense reimbursements
            
            
            2,036
            
            
            
            2,521Total
      revenues
            
            
            31,985
            
            
            
            36,828Operating
      expenses:Student
      housing leasing operations
            
            
            12,488
            
            
            
            13,036Student
      housing food service operations
            
            
            441
            
            
            
            495General
      and administrative
            
            
            3,841
            
            
            
            3,913Depreciation
      and amortization
            
            
            7,110
            
            
            
            7,200Reimbursable
      operating expenses
            
            
            2,036
            
            
            
            2,521Total
      operating expenses
            
            
            25,916
            
            
            
            27,165Operating
      income
            
            
            6,069
            
            
            
            9,663Nonoperating
      expenses:Interest
      expense
            
            
            6,150
            
            
            
            6,049Amortization
      of deferred financing costs
            
            
            218
            
            
            
            244Interest
      income
            
            
            (105
            )
            
            
            (72
            )Gain
      on extinguishment of debt
            
            
            (830
            )
            
            
            —Total
      nonoperating expenses
            
            
            5,433
            
            
            
            6,221Income
      from continuing operations before equity in earnings (losses) of
      unconsolidated entities, income taxes, redeemable noncontrolling interests
      and discontinued operations
            
            
            636
            
            
            
            3,442Equity
      in earnings (losses) of unconsolidated entities
            
            
            46
            
            
            
            (26
            )Income
      from continuing operations before income taxes, redeemable noncontrolling
      interests and discontinued operations
            
            
            682
            
            
            
            3,416Income
      tax expense (benefit)
            
            
            502
            
            
            
            (18
            )Income
      from continuing operations before redeemable noncontrolling
      interests
            
            
            180
            
            
            
            3,434Income
      (loss) attributable to redeemable noncontrolling interests
            
            
            (63
            )
            
            
            37Income
      from continuing operations
            
            
            243
            
            
            
            3,397Loss
      from discontinued operations
            
            
            (2
            )
            
            
            (42
            )Net
      income
            
            
            241
            
            
            
            3,355Less:
      Net income attributable to the noncontrolling interest
            
            
            10
            
            
            
            37Net
      income attributable to Education Realty Trust, Inc.
            
            $
            231
            
            
            $
            3,318




Earnings
      per share information:Income
      attributable to Education Realty Trust, Inc. common stockholders per share
      — basic:Continuing
      operations
            
            $
            0.01
            
            
            $
            0.12Discontinued
      operations
            
            
            —
            
            
            
            —Net
      income attributable to Education Realty Trust, Inc. common stockholders
      per share
            
            $
            0.01
            
            
            $
            0.12Income
      attributable to Education Realty Trust, Inc. common stockholders per share
      — diluted:Continuing
      operations
            
            $
            0.01
            
            
            $
            0.11Discontinued
      operations
            
            
            —
            
            
            
            —Net
      income attributable to Education Realty Trust, Inc. common stockholders
      per share
            
            $
            0.01
            
            
            $
            0.11Weighted
      average common shares outstanding – basic
            
            
            28,520,344
            
            
            
            28,512,344Weighted
      average common shares outstanding – diluted
            
            
            29,641,339
            
            
            
            29,633,339Amounts
      attributable to Education Realty Trust, Inc. – common
      stockholders:Income
      from continuing operations, net of tax
            
            $
            233
            
            
            $
            3,359Loss
      from discontinued operations, net of tax
            
            
            (2
            )
            
            
            (41
            )Net
      income
            
            $
            231
            
            
            $
            3,318Distributions
      per common share
            
            $
            0.1025
            
            
            $
            0.2050




See
accompanying notes to the condensed consolidated financial
statements.




5




CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


(Amounts
in thousands, except share data)


(Unaudited)




Common
      Stock
            
            
            AdditionalPaid-In
            
            
            Accumulated
            
            
            NoncontrollingShares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            Interest
            
            
            TotalBalance,
      December 31, 2007
            
            
            28,431,855
            
            
            $
            284
            
            
            $
            330,969
            
            
            $
            (33,434
            )
            
            $
            3,242
            
            
            $
            301,061Common
      stock issued to officers and directors
            
            
            8,000
            
            
            
            —
            
            
            
            101
            
            
            
            —
            
            
            
            —
            
            
            
            101Amortization
      of restricted stock
            
            
            36,000
            
            
            
            1
            
            
            
            604
            
            
            
            —
            
            
            
            —
            
            
            
            605Cash
      dividends
            
            
            —
            
            
            
            —
            
            
            
            (23,379
            )
            
            
            —
            
            
            
            (260
            )
            
            
            (23,639
            )PIU’s
      forfeited
            
            
            —
            
            
            
            —
            
            
            
            61
            
            
            
            —
            
            
            
            (61
            )
            
            
            —PIU’s
      issued
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            49
            
            
            
            49Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (7,947
            )
            
            
            (52
            )
            
            
            (7,999
            )Balance,
      December 31, 2008
            
            
            28,475,855
            
            
            
            285
            
            
            
            308,356
            
            
            
            (41,381
            )
            
            
            2,918
            
            
            
            270,178Common
      stock issued to officers and directors
            
            
            8,000
            
            
            
            —
            
            
            
            34
            
            
            
            —
            
            
            
            —
            
            
            
            34Amortization
      of restricted stock
            
            
            17,994
            
            
            
            —
            
            
            
            302
            
            
            
            —
            
            
            
            —
            
            
            
            302Cash
      dividends
            
            
            —
            
            
            
            —
            
            
            
            (5,846
            )
            
            
            —
            
            
            
            (57
            )
            
            
            (5,903
            )PIU’s
      forfeited
            
            
            —
            
            
            
            —
            
            
            
            30
            
            
            
            —
            
            
            
            (30
            )
            
            
            —PIU’s
      issued
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            13
            
            
            
            13Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            664
            
            
            
            19
            
            
            
            683Balance,
      June 30, 2009
            
            
            28,501,849
            
            
            $
            285
            
            
            $
            302,876
            
            
            $
            (40,717
            )
            
            $
            2,863
            
            
            $
            265,307





See
accompanying notes to the condensed consolidated financial
statements.




6




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts
in thousands)


(Unaudited)




Six
      months
            
            
            Six
      monthsended
            
            
            endedJune
      30,
            
            
            June
      30,2009
            
            
            2008Operating
      activities:Net
      income
            
            $
            683
            
            
            $
            4,257Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            14,274
            
            
            
            14,769Depreciation
      included in discontinued operations
            
            
            25
            
            
            
            48Deferred
      tax expense/(benefit)
            
            
            156
            
            
            
            (379
            )(Gain)/loss
      on disposal of assets
            
            
            (23)
            
            
            
            525Gain
      on extinguishment of debt
            
            
            (830
            )
            
            
            —Amortization
      of deferred financing costs
            
            
            519
            
            
            
            487Gain
      on interest rate cap
            
            
            (205
            )
            
            
            —Amortization
      of unamortized debt premiums/discounts
            
            
            (202
            )
            
            
            (263
            )Distributions
      of earnings from unconsolidated entities
            
            
            182
            
            
            
            124Noncash
      compensation expense related to PIUs and restricted stock
            
            
            353
            
            
            
            396Equity
      in (earnings) losses of unconsolidated entities
            
            
            (146
            )
            
            
            27Redeemable
      noncontrolling interest
            
            
            137
            
            
            
            121Change
      in operating assets and liabilities
            
            
            9,426
            
            
            
            1,388Net
      cash provided by operating activities
            
            
            24,349
            
            
            
            21,500Investing
      activities:Purchase
      of corporate furniture and equipment
            
            
            (84
            )
            
            
            (143
            )Restricted
      cash
            
            
            (667
            )
            
            
            (789
            )Investment
      in student housing properties
            
            
            (4,945
            )
            
            
            (3,954
            )Proceeds
      from sale of assets
            
            
            —
            
            
            
            2,578Proceeds
      from sale of student housing properties
            
            
            136
            
            
            
            —Insurance
      proceeds received for property damage
            
            
            175
            
            
            
            —Investment
      in assets under development
            
            
            (22,676
            )
            
            
            (11,409
            )Investment
      in unconsolidated entities
            
            
            (293
            )
            
            
            (169
            )Net
      cash used in investing activities
            
            
            (28,354
            )
            
            
            (13,886
            )Financing
      activities:Payment
      of mortgage notes
            
            
            (1,396
            )
            
            
            (24,766
            )Borrowings
      under mortgage notes and construction loans
            
            
            9,832
            
            
            
            29,712Borrowing
      (repayment) under line of credit, net
            
            
            (3,300
            )
            
            
            23,200Debt
      issuance costs
            
            
            (427
            )
            
            
            (198
            )Proceeds
      from refund of defeasance costs
            
            
            830
            
            
            
            —Dividends
      and distributions paid to common and restricted
    stockholders
            
            
            (5,846
            )
            
            
            (11,688
            )Dividends
      and distributions paid to noncontrolling interests
            
            
            (621
            )
            
            
            (586
            )Net
      cash (used in) provided by financing activities
            
            
            (928
            )
            
            
            15,674Net
      (decrease) increase in cash and cash equivalents
            
            
            (4,933
            )
            
            
            23,288Cash
      and cash equivalents, beginning of period
            
            
            9,003
            
            
            
            4,034Cash
      and cash equivalents, end of period
            
            $
            4,070
            
            
            $
            27,322




See
accompanying notes to the condensed consolidated financial
statements.




7




Six
      months
            
            
            Six
      monthsended
            
            
            endedJune
      30,
            
            
            June
      30,2009
            
            
            2008Supplemental
      disclosure of cash flow information:Interest
      paid
            
            $
            12,342
            
            
            $
            12,878Income
      taxes paid
            
            $
            408
            
            
            $
            70Supplemental
      disclosure of noncash activities:Redemption
      of minority interest from unit holder
            
            $
            —
            
            
            $
            893Note
      receivable received in connection with sale of student housing
      property
            
            $
            2,300
            
            
            $
            —




See
accompanying notes to the condensed consolidated financial
statements.




8




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except share and per share data)


(Unaudited)





1.
Organization and description of business





Education
Realty Trust, Inc. (the “Trust”) was organized in the state of Maryland on
July 12, 2004 and commenced operations as a real estate investment trust
(“REIT”) effective with the initial public offering (the “Offering”) that was
completed on January 31, 2005. Under the Trust’s Articles of Incorporation,
as amended, the Trust is authorized to issue up to 200 million shares of
common stock and 50 million shares of preferred stock, each having a par
value of $0.01 per share.





The Trust
operates primarily through a majority-owned Delaware limited partnership,
Education Realty Operating Partnership, LP (the “Operating Partnership”). The
Operating Partnership owns, directly or indirectly, interests in student housing
communities located near major universities in the United States.





The Trust
also provides real estate facility management, development and other advisory
services through the following subsidiaries of the Operating
Partnership:





•
            
            Allen
      & O’Hara Education Services, Inc. (“AOES”), a Delaware corporation
      performing student housing management activities; and•
            
            Allen
      & O’Hara Development Company, LLC (“AODC”), a Delaware limited
      liability company providing development consulting services for third
      party student housing properties.





The Trust
is subject to the risks involved with the ownership and operation of residential
real estate near major universities throughout the United States. The
risks include, among others, those normally associated with changes in the
demand for housing by students at the related universities, competition for
tenants, creditworthiness of tenants, changes in tax laws, interest rate levels,
the availability of financing, and potential liability under environmental and
other laws.





2.
Summary of significant accounting policies





Basis
of presentation and principles of consolidation





The
accompanying condensed consolidated financial statements have been prepared on
the accrual basis of accounting in conformity with accounting principles
generally accepted in the United States (“GAAP”). The accompanying condensed
consolidated financial statements represent the assets and liabilities and
operating results of the Trust and its majority owned subsidiaries.





The
Trust, as the sole general partner of the Operating Partnership, has the
responsibility and discretion in the management and control of the Operating
Partnership, and the limited partners of the Operating Partnership, in such
capacity, have no authority to transact business for, or participate in the
management activities of the Operating Partnership. Accordingly, the Trust
accounts for the Operating Partnership using the consolidation
method.





All
intercompany balances and transactions have been eliminated in the accompanying
condensed consolidated financial statements.





Interim
financial information





The
accompanying unaudited interim financial statements include all adjustments,
consisting only of normal recurring adjustments, that in the opinion of
management are necessary for a fair presentation of the Trust’s financial
position, results of operations and cash flows for such periods. Because of the
seasonal nature of the business, the operating results and cash flows are not
necessarily indicative of results that may be expected for any other interim
periods or for the full fiscal year. These financial statements should be read
in conjunction with the Trust’s consolidated financial statements and related
notes, included in the Trust’s Annual Report on Form 10-K for the year
ended December 31, 2008, filed with the Securities and Exchange Commission
(the “SEC”).




9





Use
of estimates





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and 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 estimates and assumptions are used by
management in determining the recognition of third-party development consulting
services revenue under the percentage of completion method, useful lives of
student housing assets, the valuation of goodwill, the initial valuations and
underlying allocations of purchase price in connection with student property
acquisitions, the determination of fair value for impairment assessments, and in
the recording of the allowance for doubtful accounts. Actual results could
differ significantly from those estimates.





Cash
and cash equivalents





All
highly liquid investments with a maturity of three months or less when purchased
are considered cash equivalents. Restricted cash is excluded from cash for the
purpose of preparing the condensed consolidated statements of cash flows. The
Trust maintains cash balances in various banks. At times, the amounts of cash
held in certain bank accounts may exceed the amount that the Federal Deposit
Insurance Corporation (“FDIC”) insures.  At June 30, 2009, the Trust
had no cash on deposit that was uninsured by the FDIC or in excess of FDIC
limits.





Restricted
cash





Restricted
cash includes escrow accounts held by lenders for the purpose of paying taxes,
insurance, principal and interest, and to fund future repairs and capital
improvements.





Distributions





The Trust
currently pays regular quarterly cash distributions to stockholders. These
distributions are determined quarterly by the Board of Directors based on the
operating results, economic conditions, capital expenditure needs, the Internal
Revenue Code’s REIT annual distribution requirements, leverage covenants imposed
by our revolving credit facility and other debt documents, and any other matters
the Board of Directors deems relevant.





Student
housing properties





Land,
land improvements, buildings and improvements, and furniture, fixtures and
equipment are recorded at cost. Buildings and improvements are depreciated over
30 to 40 years, land improvements are depreciated over 15 years and
furniture, fixtures, and equipment are depreciated over 3 to 7 years.
Depreciation is computed using the straight-line method for financial reporting
purposes over the estimated useful life.





Acquisitions
of student housing properties are accounted for utilizing the purchase method in
accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 141,Business
Combinations, and accordingly, the acquired student housing
properties’ results of operations are included in the Trust’s results of
operations from the respective dates of acquisition. Prior to 2009, 
pre-acquisition costs, which include legal and professional fees and other
third-party costs related directly to the acquisition of a property, were
accounted for as part of the purchase price. Appraisals, estimates of cash flows
and valuation techniques are used to allocate the purchase price of acquired
property between land, land improvements, buildings and improvements, furniture,
fixtures and equipment and identifiable intangibles such as amounts related to
in-place leases. On January 1, 2009 the Trust adopted SFAS No. 141R, which
prospectively changes the requirements for how an acquirer recognizes and
measures the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired.  SFAS No. 141R also enhances the disclosures to enable the
evaluation of the nature and financial effects of the business combination and
requires that pre-acquisition costs be expensed as incurred. The Trust will
apply the provisions of SFAS No. 141R to all future acquisitions.




10





Management
assesses impairment of long-lived assets in accordance with SFAS
No. 144,Accounting for
the Impairment and Disposal of Long-lived Assets.  SFAS
No. 144 requires that long-lived assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In accordance with SFAS
No. 144, management uses an estimate of future undiscounted cash flows of
the related asset over the remaining life in measuring whether the assets are
recoverable.





Certain
student housing properties may be classified as held for sale based on the
criteria within SFAS No. 144. When a student housing property is identified
as held for sale, the net realizable value of such asset is estimated. If the
net realizable value of the asset is less than the carrying amount of the asset,
an impairment charge is recorded for the estimated loss. Depreciation expense is
no longer recorded once a student housing property has met the held for sale
criteria. Operations of student housing properties that are sold or classified
as held for sale are recorded as part of discontinued operations for all periods
presented. No impairment loss on student housing properties held for sale was
recognized in the accompanying condensed consolidated statements of
operations.





Repairs,
maintenance and major improvements





The costs
of ordinary repairs and maintenance are charged to operations when incurred.
Major improvements that extend the life of an asset are capitalized and
depreciated over the remaining useful life of the asset. Planned major repair,
maintenance and improvement projects are capitalized when performed. In some
circumstances, the lenders require the Trust to maintain a reserve account for
future repairs and capital expenditures. These amounts are classified as
restricted cash as the funds are not available for current use.





Investment
in unconsolidated joint ventures, limited liability companies and limited
partnerships





The
Operating Partnership accounts for its investments in unconsolidated joint
ventures, limited liability companies and limited partnerships using the equity
method whereby the cost of an investment is adjusted for the Trust’s share of
earnings of the respective investment reduced by distributions received. The
earnings and distributions of the unconsolidated joint ventures, limited
liability companies and limited partnerships are allocated based on each owner’s
respective ownership interests. These investments are classified as other assets
in the accompanying condensed consolidated balance sheets.





Deferred
financing costs





Deferred
financing costs represent costs incurred in connection with acquiring debt
facilities. These costs are amortized over the terms of the related debt using a
method that approximates the effective interest method. Deferred financing
costs, net of amortization, are included in other assets in the accompanying
condensed consolidated balance sheets.





Offering
costs





Specific
incremental costs directly attributable to the issuance of common stock are
charged against the gross proceeds. Accordingly, underwriting commissions and
other stock issuance costs are reflected as a reduction of additional paid-in
capital.





Debt
premiums/discounts





Differences
between the estimated fair value of debt and the principal value of debt assumed
in connection with student housing property acquisitions are amortized over the
term of the related debt as an offset to interest expense using the effective
interest method.





Income
taxes





The Trust
qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the
“Code”). The Trust is generally not subject to federal income tax to the extent
that it distributes at least 90% of its taxable income for each tax year to its
stockholders. REITs are subject to a number of organizational and operational
requirements. If the Trust fails to qualify as a REIT in any taxable year, the
Trust will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income and property and to federal
income and excise taxes on its undistributed income.




11





The Trust
has elected to treat its management company, AOES, as a taxable REIT
subsidiary (“TRS”). The TRS is subject to federal, state and local income taxes.
AOES manages the Trust’s non-REIT activities which include management services
and development services, which are provided through AODC. The Trust follows
SFAS No. 109,Accounting
for Income Taxes, which requires the use of the asset and liability
method. 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.





The Trust
also follows Interpretation No. 48, Accounting for Uncertainty in Income
Taxes. The Trust had no unrecognized tax benefits as of June 30, 2009 and
2008.  As of June 30, 2009, the Trust does not expect to record any
unrecognized tax benefits.  The Trust, or its subsidiaries, files
income tax returns in the U.S. Federal jurisdiction and various states’
jurisdictions. As of June 30, 2009, open tax years generally include tax years
2005-2008. The Trust’s policy is to include interest and penalties related to
unrecognized tax benefits in general and administrative expenses.  At
June 30, 2009, the Trust had no interest or penalties recorded related to
unrecognized tax benefits.





Noncontrolling
interests





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
160, Noncontrolling Interests
in Consolidated Financial Statements-an amendment of Accounting Research
Bulletin No. 51 (“SFAS No. 160”).  SFAS No. 160 establishes the
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interests, changes in a
parent’s ownership interest and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated.  SFAS No. 160 also
establishes disclosure requirements to clearly distinguish between the interests
of the parent and the interests of the noncontrolling
owners.   SFAS No. 160 was adopted by the Trust on January 1,
2009.  The Operating Partnership Units, the University Towers
Operating Partnership Units and profits interest units (“PIU”) (see Note 9) are
now referred to as noncontrolling interests (formerly minority
interests).  In connection with the adoption, the Trust also
considered the guidance in FASB EITF Topic D-98, Classification and Measurement of
Redeemable Securities.  The Operating Partnership Units and the
University Towers Operating Partnership Units are redeemable at the option of
the holder for cash and essentially have the same characteristics as common
stock as they participate in net income and distributions. However, the Trust
may opt to issue an equivalent number of shares of common stock in place of
cash. Accordingly,
the Trust determined that the Operating Partnership Units and the University
Towers Operating Partnership Units meet the requirements to be classified
outside of permanent equity and are therefore classified as redeemable
noncontrolling interests in the accompanying condensed consolidated balance
sheets.  The value of redeemable noncontrolling interests is reported
at the greater of fair value or historical cost at the end of each reporting
period.





The
PIU’s were determined to be noncontrolling interests that are not redeemable and
accordingly these amounts were reclassified to equity in the accompanying
condensed consolidated balance sheets.  The PIU holder’s share of
income or loss is reported in the accompanying condensed consolidated statements
of operations as net income attributable to noncontrolling
interests.





Earnings
per share





The Trust
calculates earnings per share in accordance with SFAS No. 128,Earnings Per Share. Basic
earnings per share is calculated by dividing net earnings available to common
shares by weighted average common shares outstanding. Diluted earnings per share
is calculated similarly, except that it includes the dilutive effect of the
assumed exercise of potentially dilutive securities. The Trust adopted FASB
Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities,
on January 1, 2009.  Upon adoption all unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
are included in the computation of earnings per share under the two-class
method.  The adoption resulted in shares of unvested restricted stock
being included in the computation of basic earnings per share for all periods
presented.  The adoption did not have a material impact on the Trust’s
condensed consolidated financial statements.




12





The
following reconciles the basic and diluted weighted average shares for the three
and six months ended June 30, 2009 and 2008:





Six
      months
            
            
            Six
      monthsended
      June 30,
            
            
            ended
      June 30,2009
            
            
            2008Basic
      weighted average common shares outstanding
            
            
            28,518,430
            
            
            
            28,510,564Operating
      Partnership units
            
            
            913,738
            
            
            
            913,738University
      Towers Operating Partnership units
            
            
            207,257
            
            
            
            231,698Diluted
      weighted average common shares outstanding
            
            
            29,639,425
            
            
            
            29,656,000





Three
      months
            
            
            Three
      monthsended
      June 30,
            
            
            ended
      June 30,2009
            
            
            2008Basic
      weighted average common shares outstanding
            
            
            28,520,344
            
            
            
            28,512,344Operating
      Partnership units
            
            
            913,738
            
            
            
            913,738University
      Towers Operating Partnership units
            
            
            207,257
            
            
            
            207,257Diluted
      weighted average common shares outstanding
            
            
            29,641,339
            
            
            
            29,633,339





Goodwill
and other intangible assets





The Trust
accounts for its goodwill and other intangible assets under SFAS
No. 142,Goodwill and
Other Intangible Assets. Goodwill is tested annually for impairment, and
is tested for impairment more frequently if events and circumstances indicate
that the assets might be impaired. An impairment loss is recognized to the
extent that the carrying amount exceeds the asset’s fair value.  The
carrying value of goodwill was $3,070 at June 30, 2009 and December 31,
2008.  Other intangible assets generally include in-place leases and
management contracts acquired in connection with acquisitions and are amortized
over the estimated life of the lease/contract term.  The carrying
value of other intangible assets was $20 and $41 at June 30, 2009 and December
31, 2008, respectively.





Comprehensive
Income





The Trust
follows SFAS No. 130,Reporting Comprehensive Income, which established standards for reporting
and displaying comprehensive income and its components. For all periods
presented, comprehensive income (loss) is equal to net income
(loss).





Revenue
recognition





The Trust
recognizes revenue related to leasing activities at the student housing
properties owned by the Trust, management fees related to managing third party
student housing properties, development consulting fees related to the general
oversight of third party student housing development and construction and
operating expense reimbursements for payroll and related expenses incurred for
third party student housing properties managed or developed by the
Trust.





Student housing leasing
revenue — Student housing leasing revenue is comprised of all activities
related to leasing and operating the student housing properties and includes
revenues from leasing apartments by the bed, parking lot rentals, and providing
certain ancillary services. This revenue is reflected in student housing leasing
revenue in the accompanying condensed consolidated statements of operations.
Students are required to execute lease contracts with payment schedules that
vary from annual to monthly payments. Generally, the Trust requires each
executed leasing contract to be accompanied by a signed parental guarantee.
Receivables are recorded when billed. Revenues and related lease incentives and
nonrefundable application and service fees are recognized on a straight-line
basis over the term of the contracts. The Trust has no contingent rental
contracts, except as noted below, related to other leasing revenue. At certain
student housing facilities, the Trust offers parking lot rentals to the tenants.
The related revenues are recognized on a straight-line basis over the term of
the related agreement.




13





Student housing food service
revenue — The Trust maintains a dining facility at University Towers,
which offers meal plans to the tenants as well as dining to other third-party
customers. The meal plans typically require upfront payment by the tenant
covering the school semester, and the related revenue is recognized on a
straight-line basis over the corresponding semester.





Other leasing revenue — Other
leasing revenue relates to our leasing of the 13 properties (“Place Portfolio”)
we acquired from Place Properties, Inc. (“Place”) in January
2006.  Simultaneous with the acquisition of the Place Portfolio, the
Trust leased the assets to Place and received base monthly rent of $1,145 and
had the right to receive “Additional Rent” annually if the properties exceeded
certain criteria defined in the lease agreement. Base rent was recognized on a
straight-line basis over the lease term and Additional Rent was recognized only
upon satisfaction of the defined criteria. The lease was terminated on February
1, 2008.  In connection with the termination of the lease, Place paid
the Operating Partnership a lease termination fee of $6,000 of which $5,800 was
recognized during the six months ended June 30, 2008.





Third-party development services
revenue — The Trust provides development consulting services in an agency
capacity with third parties whereby the fee is determined based upon the total
construction costs. Total fees vary from 3-5% of the total estimated costs, and
we typically receive a portion of the fees up front. These fees, including the
upfront fee, are recognized using the percentage of completion method in
proportion to the contract costs incurred by the owner over the course of
construction of the respective projects.  Occasionally, the
development consulting contracts include a provision whereby the Trust can
participate in project savings resulting from successful cost management
efforts.  These revenues are recognized once all contractual terms
have been satisfied and no future performance requirements
exist.  This typically occurs after construction is
complete.  For the six months ended June 30, 2009 and 2008 there was
no revenue recognized related to cost savings.





Third-party management services
revenue — The Trust enters into management contracts to manage
third-party student housing facilities. Management revenues are recognized when
earned in accordance with each management contract. Incentive management fees
are recognized when the incentive criteria have been met.





Operating expense
reimbursements — The Trust pays certain payroll and related costs to
operate third-party student housing properties that are managed by the Trust and
certain costs for third-party development services. Under the terms of the
related management and development agreements, the third-party owners reimburse
these costs. The amounts billed to the third-party owners are recognized as
revenue in accordance with Emerging Issues Task Force No. 01-14,Income Statement
Characterization of Reimbursements Received for “Out of Pocket” Expenses
Incurred.





Costs
related to third party development consulting services





Costs
associated with the pursuit of development consulting contracts are expensed as
incurred, until such time that management has been notified of a contract award.
At such time the reimbursable costs are recorded as receivables and are
reflected as other assets in the accompanying condensed consolidated balance
sheets.





Recently
issued accounting pronouncements





In
May 2009, theFASB
issued SFAS No. 165, Subsequent Events. SFAS No.
165 is intended to establish general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. Specifically, this standard
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.  SFAS No. 165 is effective for
financial statements issued for fiscal years and interim periods beginning after
June 15, 2009 and will be applied prospectively.





In
June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), to improve financial reporting by enterprises involved
with variable interest entities by addressing (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable
Interest Entities, as a result of the elimination of the qualifying
special-purpose entity concept in FASB Statement No. 166, Accounting for Transfers of
Financial Assets, and (2) constituent concerns about the application of
certain key provisions of Interpretation 46(R), including those in which the
accounting and disclosures under the Interpretation do not always provide timely
and useful information about an enterprise’s involvement in a variable interest
entity. This statement is effective for financial statements issued for fiscal
years beginning after November 15, 2009, with earlier adoption prohibited.
The Trust is currently evaluating the impact of adopting SFAS No. 167 on its
consolidated financial statements.




14





In
June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards
Codification” and the Hierarchy of Generally Accepted Accounting
Principles. This standard replaces SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, and establishes only two levels of U.S. GAAP,
authoritative and nonauthoritative. The FASB Accounting Standards Codification
(the “Codification”) will become the source of authoritative, nongovernmental
GAAP, except for rules and interpretive releases of the SEC, which are
sources of authoritative GAAP for SEC registrants. All other nongrandfathered,
non-SEC accounting literature not included in the Codification will become
nonauthoritative. This standard is effective for financial statements issued for
fiscal years and interim periods ending after September 15, 2009. 
 As the Codification was not intended to change or alter existing GAAP, it
will not have any impact on the Trust’s consolidated financial
statements.





3.
Investments in unconsolidated entities





As of
June 30, 2009, the Trust had investments, directly or indirectly, in the
following active unconsolidated joint ventures, limited liability companies and
limited partnerships that are accounted for under the equity
method:





•
            
            University
      Village-Greensboro LLC, a Delaware limited liability company, 25% owned by
      the Operating Partnership•
            
            WEDR
      Riverside Investors V, LLC, a Delaware limited liability company, 10%
      owned by the Operating Partnership•
            
            APF
      EDR, LP, a Delaware limited partnership, 10% owned by the Operating
      Partnership•
            
            APF
      EDR Food Services, LP, a Delaware limited partnership, 10% owned by the
      Operating Partnership•
            
            WEDR
      Stinson Investors V, LLC, a Delaware limited liability company, 10% owned
      by the Operating Partnership





The
following is a summary of financial information for the Trust’s unconsolidated
joint ventures, limited liability companies and limited partnerships for the six
months ended June 30, 2009 and 2008:





2009
            
            
            2008Results
      of Operations:Revenues
            
            $
            8,672
            
            
            $
            8,283Net
      income (loss)
            
            
            626
            
            
            
            (614
            )Equity
      in earnings (losses) of unconsolidated entities
            
            $
            146
            
            
            $
            (27
            )





These
entities primarily own student housing communities which are managed by the
Trust.  As of June 30, 2009 and December 31, 2008, the Trust’s
investment in unconsolidated entities totaled $3,015 and $2,759,
respectively.





4.
Debt





Revolving
credit facility





The
Operating Partnership has a revolving credit facility (the “Amended Revolver”)
dated January 31, 2005 with a maximum availability of $100,000.
Availability under the Amended Revolver is limited to a “borrowing base
availability” equal to the lesser of (i) 65% of the property asset value
(as defined in the amended agreement) of the properties securing the facility
and (ii) the loan amount which would produce a debt service coverage ratio
of no less than 1.30, with debt service based on the greater of two different
sets of conditions specified in the amended agreement. As of June 30, 2009, our
borrowing base was $46,212, we had $29,600 of borrowings outstanding and we had
letters of credit outstanding of $2,000 (see Note 6); thus, our remaining
availability was $14,612. We do, however, have additional unmortgaged properties
that can be pledged against the Amended Revolver to increase total
availability.




15





The Trust
serves as the guarantor for any funds borrowed by the Operating Partnership
under the Amended Revolver. Additionally, the Amended Revolver is secured by a
cross-collateralized, first mortgage lien on five otherwise unmortgaged
properties.  The Amended Revolver had a term of three years and
matured on March 30, 2009.  However, the Operating Partnership
exercised its option to extend the maturity date until March 30, 2010, under
existing terms. The interest rate per annum applicable to the Amended Revolver
is, at the Operating Partnership’s option, equal to a base rate or London
InterBank Offered Rate (“LIBOR”) plus an applicable margin based upon our
leverage (2.64% at June 30, 2009).





The
Amended Revolver contains customary affirmative and negative covenants and
contains financial covenants that, among other things, require the Trust and its
subsidiaries to maintain certain minimum ratios of “EBITDA” (earnings before
payment or charges of interest, taxes, depreciation, amortization or
extraordinary items) as compared to interest expense and total fixed charges.
The financial covenants also include consolidated net worth and leverage ratio
tests.





The Trust
is prohibited from making distributions that exceed $1.20 per share unless prior
to and after giving effect to such action the total leverage ratio is less than
or equal to 60%. The amount of restricted payments permitted may be increased as
long as either of the following conditions is met: (a) after giving effect
to the increased restricted payment, the total leverage ratio shall remain less
than or equal to 60%; or (b) the increased restricted payment, when
considered along with all other restricted payments for the last 3 quarters,
does not exceed 95% of funds from operations for the applicable
period.





Mortgage
and construction debt





At June
30, 2009, the Trust had outstanding mortgage and construction indebtedness of
$449,493 (excluding unamortized debt premium of $1,000).  $20,924
relates to construction debt that is disclosed below and $231,816 pertains to
outstanding mortgage debt that is secured by the underlying student housing
properties or leaseholds bearing interest at fixed rates ranging from 4.92% to
6.97%.  The remaining $196,753 of the outstanding mortgage
indebtedness relates to the $222,000 Master Secured Credit Facility the Trust
entered into on December 31, 2008 to prepay the mortgage debt maturing in July
of 2009.  $49,609 of the outstanding amount under the Master Secured
Credit Facility bears interest at variable rates based on the 30-day LIBOR plus
an applicable margin. The remaining outstanding balance of $147,144 bears
interest at a weighted average fixed rate of 6.01%.  The Trust
accounted for the prepayment of mortgage debt mentioned above as a legal
defeasance and recognized a loss on the early extinguishment during 2008.
During the three months ended June 30, 2009, the Trust received a refund of
defeasance costs resulting in an $830 gain on the
extinguishment.




In order
to hedge the interest rate risk associated with the variable rate loans under
the Master Secured Credit Facility, the Operating Partnership purchased an
interest rate cap from the Royal Bank of Canada on December 22, 2008 for
$120.  The notional amount of the cap is $49,874, the cap will
terminate on December 31, 2013 and the cap rate is 7.0% per
annum.  The Operating Partnership has chosen not to designate the cap
as a hedge and will recognize all gains or losses associated with this
derivative instrument in earnings.  At June 30, 2009 and December 31,
2008, the cap had a value of $287 and $82, respectively, and is classified in
other assets in the accompanying condensed consolidated balance
sheets.





At June
30, 2009, the Trust had $10,674 and $6,334 outstanding on construction loans of
$11,000 and $12,285, respectively, related to the development of phase I and
phase II of a wholly-owned student apartment community near Southern Illinois
University (see Note 7). The loans bear interest equal to LIBOR plus a 110 and
200 basis point margin, respectively, and are interest only through June 14,
2010. Commencing on June 14, 2010, and annually thereafter, a debt service
coverage ratio calculated on a rolling 12 month basis, of not less than
1.25 to 1, must be maintained in order to extend the loans until June 28,
2012, with principal and interest being repaid on a monthly basis. The Trust
incurred $81 in deferred financing costs in connection with the construction
loans in 2008.





At June
30, 2009, the Trust had $3,917 outstanding on a $14,300 construction loan
related to the development of a wholly-owned student apartment community at
Syracuse University (see Note 7). The loan bears interest equal to LIBOR plus a
110 basis point margin and is interest only through September 29, 2011.
Commencing with the quarter ended June 30, 2011, and annually thereafter, a
debt service coverage ratio calculated on a rolling 12 month basis, of not
less than 1.25 to 1, must be maintained in order to extend the loan until
September 29, 2013, with principal and interest being repaid on a monthly
basis.




16





On
March 3, 2008, mortgage debt in the amount of $22,977, secured by the
student housing community referred to as University Towers, bearing interest at
an effective rate of 5.48%, matured and was repaid by the Trust with additional
borrowings on the Amended Revolver. On June 27, 2008, the Trust refinanced
the debt with a $25,000, interest only, fixed rate mortgage bearing interest at
5.99% through June 30, 2013. After the initial maturity, the Trust has the
option to extend the loan for 12 months with principal and interest equal
to LIBOR plus a 250 basis point margin per annum being repaid on a monthly
basis. The Trust used the proceeds from the refinancing to pay down the Amended
Revolver.





The
scheduled maturities of outstanding mortgage and construction indebtedness at
June 30, 2009 are as follows:





Fiscal
      Year Ending2009
      (6 months ending December 31, 2009)
                  
                  $
                  100,2352010
                  
                  
                  20,3142011
                  
                  
                  7,3942012
                  
                  
                  67,9392013
                  
                  
                  32,304Thereafter
                  
                  
                  221,307Total
                  
                  
                  449,493Unamortized
      debt premium/discounts
                  
                  
                  1,000Outstanding
      at June 30, 2009, net of unamortized premiums/discounts
                  
                  $
                  450,493





At June
30, 2009, the outstanding mortgage and construction debt had a weighted average
interest rate of 5.64% and carried a weighted average term to maturity of
4.19 years.





The Trust
has $98,660 of mortgage debt scheduled to mature in December 2009.  If
capital and equity markets continue to erode significantly (or do not recover)
and the Trust cannot find replacement financing, the Trust would not have enough
existing liquidity (from operations or the Amended  Revolver) to repay
the mortgage debt at maturity.  If this occurs, the Trust would pursue
and expect to obtain an extension from the current lender in order to provide
additional time to obtain replacement financing.  However, there can
be no assurance that these efforts would be successful. If these efforts are
insufficient to provide the required refinancing funds, the nine encumbered
properties could be turned over to the lender and as a result the Trust could
cross default the Amended Revolver. Management has reviewed its cash flows and
has identified plans that could be implemented in an effort to repay the
outstanding balance on the Amended Revolver.   These plans could
include the elimination of or the payment in kind of our dividends, suspension
of capital spend, cost reductions, and, subject to market conditions, possible
asset dispositions and/or a potential equity capital event. Management has
assessed the student housing assets that would remain in the portfolio and
currently believe they should be able to produce sufficient cash flows to fund
operations and service the remaining debt requirements in the near
future.




17





5.
Segments





The Trust
defines business segments by their distinct customer base and service provided.
The Trust has identified three reportable segments: student housing leasing,
development-consulting services and  management services. Management
evaluates each segment’s performance based on pretax income and on net operating
income, which is defined as income before depreciation, amortization, impairment
losses, interest expense, gains (losses) on extinguishment of debt, equity in
earnings of unconsolidated entities, and noncontrolling interests. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies. Intercompany fees are
reflected at the contractually stipulated amounts. Discontinued operations are
not included in segment reporting as management addresses these items on a
corporate level. The following table represents segment information for the six
months ended June 30, 2009 and 2008:





Six
      Months Ended June 30, 2009
              
              
              Six Months
      Ended June 30, 2008Student
              
              
              Development
              
              
              
              
              
              
              
              
              
              
              
              Student
              
              
              DevelopmentHousing
              
              
              Consulting
              
              
              Management
              
              
              
              
              
              
              
              
              Housing
              
              
              Consulting
              
              
              ManagementLeasing
              
              
              Services
              
              
              Services
              
              
              Adjustments
              
              
              Total
              
              
              Leasing
              
              
              Services
              
              
              Services
              
              
              Adjustments
              
              
              TotalRevenues:Student
      housing leasing revenue
              
              $
              56,221
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              56,221
              
              
              $
              52,944
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              52,944Student
      housing food service revenue
              
              
              1,059
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,059
              
              
              
              1,196
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,196Other
      leasing revenue
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              6,945
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              6,945Third-party
      development consulting services
              
              
              —
              
              
              
              2,716
              
              
              
              —
              
              
              
              —
              
              
              
              2,716
              
              
              
              —
              
              
              
              3,008
              
              
              
              —
              
              
              
              —
              
              
              
              3,008Third-party
      management services
              
              
              —
              
              
              
              —
              
              
              
              1,632
              
              
              
              —
              
              
              
              1,632
              
              
              
              —
              
              
              
              —
              
              
              
              1,807
              
              
              
              —
              
              
              
              1,807Intersegment
      revenues
              
              
              —
              
              
              
              1,048
              
              
              
              2,186
              
              
              
              (3,234
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,081
              
              
              
              (2,081
              )
              
              
              —Operating
      expense reimbursements
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,226
              
              
              
              4,226
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,140
              
              
              
              5,140Total
      revenues
              
              
              57,280
              
              
              
              3,764
              
              
              
              3,818
              
              
              
              992
              
              
              
              65,854
              
              
              
              61,085
              
              
              
              3,008
              
              
              
              3,888
              
              
              
              3,059
              
              
              
              71,040Operating
      expenses:Student
      housing leasing operations
              
              
              25,086
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              25,086
              
              
              
              25,031
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              25,031Student
      housing food service operations
              
              
              1,013
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,013
              
              
              
              1,128
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,128General
      and administrative
              
              
              —
              
              
              
              1,481
              
              
              
              3,679
              
              
              
              (81
              )
              
              
              5,079
              
              
              
              3
              
              
              
              1,454
              
              
              
              3,579
              
              
              
              —
              
              
              
              5,036Intersegment
      expenses
              
              
              2,186
              
              
              
              —
              
              
              
              —
              
              
              
              (2,186
              )
              
              
              —
              
              
              
              2,081
              
              
              
              —
              
              
              
              —
              
              
              
              (2,081
              )
              
              
              —Reimbursable
      operating expenses
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,226
              
              
              
              4,226
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,140
              
              
              
              5,140Total
      operating expenses
              
              
              28,285
              
              
              
              1,481
              
              
              
              3,679
              
              
              
              1,959
              
              
              
              35,404
              
              
              
              28,243
              
              
              
              1,454
              
              
              
              3,579
              
              
              
              3,059
              
              
              
              36,335Net
      operating income
              
              
              28,995
              
              
              
              2,283
              
              
              
              139
              
              
              
              (967
              )
              
              
              30,450
              
              
              
              32,842
              
              
              
              1,554
              
              
              
              309
              
              
              
              —
              
              
              
              34,705Nonoperating
      expenses(1)
              
              
              25,796
              
              
              
              (42
              )
              
              
              —
              
              
              
              —
              
              
              
              25,754
              
              
              
              26,850
              
              
              
              (41
              )
              
              
              —
              
              
              
              —
              
              
              
              26,809Income
      before equity in earnings (losses) of unconsolidated entities, income
      taxes, redeemable noncontrolling interests and discontinued
      operations
              
              
              3,199
              
              
              
              2,325
              
              
              
              139
              
              
              
              (967
              )
              
              
              4,696
              
              
              
              5,992
              
              
              
              1,595
              
              
              
              309
              
              
              
              —
              
              
              
              7,896Equity
      in earnings (losses) of unconsolidated entities
              
              
              148
              
              
              
              (2
              )
              
              
              —
              
              
              
              —
              
              
              
              146
              
              
              
              (26
              )
              
              
              (1
              )
              
              
              —
              
              
              
              —
              
              
              
              (27
              )Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations(2)
              
              $
              3,347
              
              
              $
              2,323
              
              
              $
              139
              
              
              $
              (967
              )
              
              $
              4,842
              
              
              $
              5,966
              
              
              $
              1,594
              
              
              $
              309
              
              
              $
              —
              
              
              $
              7,869Total
      segment assets, as of June 30, 2009 and December 31, 2008
    (3)
              
              $
              766,410
              
              
              $
              4,942
              
              
              $
              4,199
              
              
              $
              —
              
              
              $
              775,551
              
              
              $
              760,477
              
              
              $
              2,381
              
              
              $
              4,567
              
              
              $
              —
              
              
              $
              767,425




(1)
            Nonoperating
      expenses include interest expense, interest income, gains (losses) on the
      extinguishment of debt, amortization of deferred financing costs,
      depreciation, and amortization of intangibles.(2)
            The
      following is a reconciliation of the reportable segments’
      income before income taxes, redeemable noncontrolling interests and
      discontinued operations to the Trust’s consolidated income before income
      taxes, redeemable noncontrolling interests and discontinued operations for
      the six months ended June 30:




2009
              
              
              2008Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations for reportable segments
              
              $
              4,842
              
              
              $
              7,869Other
      unallocated corporate expenses
              
              
              (3,313
              )
              
              
              (3,284
              )Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations
              
              $
              1,529
              
              
              $
              4,585




(3)
              The
      increase in segment assets related to student housing leasing is primarily
      related to the development of two wholly owned student apartment
      communities in Carbondale, IL and Syracuse, NY (see Note
      7).  The increase in segment assets related to development
      consulting services is primarily due to a $2,186 increase in the
      receivable for reimbursable project costs related to the development at
      East Stroudsburg University (see Note
6).




18




The
following table represents segment information for the three months ended June
30, 2009 and 2008:





Three
      Months Ended June 30, 2009
              
              
              Three Months
      Ended June 30, 2008Student
              
              
              Development
              
              
              
              
              
              
              
              
              
              
              
              Student
              
              
              DevelopmentHousing
              
              
              Consulting
              
              
              Management
              
              
              
              
              
              
              
              
              Housing
              
              
              Consulting
              
              
              ManagementLeasing
              
              
              Services
              
              
              Services
              
              
              Adjustments
              
              
              Total
              
              
              Leasing
              
              
              Services
              
              
              Services
              
              
              Adjustments
              
              
              TotalRevenues:Student
      housing leasing revenue
              
              $
              27,501
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              27,501
              
              
              $
              26,713
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              26,713Student
      housing food service revenue
              
              
              466
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              466
              
              
              
              541
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              541Other
      leasing revenue
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,000
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,000Third-party
      development consulting services
              
              
              —
              
              
              
              1,259
              
              
              
              —
              
              
              
              —
              
              
              
              1,259
              
              
              
              —
              
              
              
              1,221
              
              
              
              —
              
              
              
              —
              
              
              
              1,221Third-party
      management services
              
              
              —
              
              
              
              —
              
              
              
              723
              
              
              
              —
              
              
              
              723
              
              
              
              —
              
              
              
              —
              
              
              
              832
              
              
              
              —
              
              
              
              832Intersegment
      revenues
              
              
              —
              
              
              
              574
              
              
              
              1,061
              
              
              
              (1,635
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,044
              
              
              
              (1,044
              )
              
              
              —Operating
      expense reimbursements
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,036
              
              
              
              2,036
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,521
              
              
              
              2,521Total
      revenues
              
              
              27,967
              
              
              
              1,833
              
              
              
              1,784
              
              
              
              401
              
              
              
              31,985
              
              
              
              32,254
              
              
              
              1,221
              
              
              
              1,876
              
              
              
              1,477
              
              
              
              36,828Operating
      expenses:Student
      housing leasing operations
              
              
              12,488
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              12,488
              
              
              
              13,036
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              13,036Student
      housing food service operations
              
              
              441
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              441
              
              
              
              495
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              495General
      and administrative
              
              
              —
              
              
              
              749
              
              
              
              1,711
              
              
              
              (44
              )
              
              
              2,416
              
              
              
              —
              
              
              
              723
              
              
              
              1,781
              
              
              
              —
              
              
              
              2,504Intersegment
      expenses
              
              
              1,061
              
              
              
              —
              
              
              
              —
              
              
              
              (1,061
              )
              
              
              —
              
              
              
              1,044
              
              
              
              —
              
              
              
              —
              
              
              
              (1,044
              )
              
              
              —Reimbursable
      operating expenses
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,036
              
              
              
              2,036
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,521
              
              
              
              2,521Total
      operating expenses
              
              
              13,990
              
              
              
              749
              
              
              
              1,711
              
              
              
              931
              
              
              
              17,381
              
              
              
              14,575
              
              
              
              723
              
              
              
              1,781
              
              
              
              1,477
              
              
              
              18,556Net
      operating income
              
              
              13,977
              
              
              
              1,084
              
              
              
              73
              
              
              
              (530
              )
              
              
              14,604
              
              
              
              17,679
              
              
              
              498
              
              
              
              95
              
              
              
              —
              
              
              
              18,272Nonoperating
      expenses(1)
              
              
              12,367
              
              
              
              (31
              )
              
              
              —
              
              
              
              —
              
              
              
              12,336
              
              
              
              13,230
              
              
              
              (10
              )
              
              
              —
              
              
              
              —
              
              
              
              13,220Income
      before equity in earnings (losses) of unconsolidated entities, income
      taxes, redeemable noncontrolling interests and discontinued
      operations
              
              
              1,610
              
              
              
              1,115
              
              
              
              73
              
              
              
              (530
              )
              
              
              2,268
              
              
              
              4,449
              
              
              
              508
              
              
              
              95
              
              
              
              —
              
              
              
              5,052Equity
      in earnings (losses) of unconsolidated entities
              
              
              48
              
              
              
              (2
              )
              
              
              —
              
              
              
              —
              
              
              
              46
              
              
              
              (26
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (26
              )Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations(2)
              
              $
              1,658
              
              
              $
              1,113
              
              
              $
              73
              
              
              $
              (530
              )
              
              $
              2,314
              
              
              $
              4,423
              
              
              $
              508
              
              
              $
              95
              
              
              $
              —
              
              
              $
              5,026




(1)
            Nonoperating
      expenses include interest expense, interest income, gains (losses) on
      extinguishment of debt, amortization of deferred financing costs,
      depreciation, and amortization of intangibles.(2)
            The
      following is a reconciliation of the reportable segments’
      income before income taxes, redeemable noncontrolling interests and
      discontinued operations to the Trust’s consolidated income before income
      taxes, redeemable noncontrolling interests and discontinued operations for
      the three months ended June 30:




2009
                
                
                2008Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations for reportable segments
                
                $
                2,314
                
                
                $
                5,026Other
      unallocated corporate expenses
                
                
                (1,632
                )
                
                
                (1,610
                )Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations
                
                $
                682
                
                
                $
                3,416






19




6.
Commitments and contingencies





In
connection with one of the Trust’s student housing portfolio acquisitions in
2005, the Trust became aware of a June 2001 notification from the
United States Department of Justice of an on-going investigation regarding
possible violations of the American Disabilities Act of 1990 and the Fair
Housing Amendments Act of 1988 related to one of its student housing properties.
In October 2002, the investigations were delayed for an undetermined period
of time and, therefore, have not been fully resolved. Management does not
believe the resolution of this matter will result in a material adverse effect
on the Trust’s consolidated financial condition or results of
operations.





The
Operating Partnership entered into a letter of credit agreement in conjunction
with the closing of the acquisition of a student housing property at the
University of Florida. The letter of credit remains outstanding in the amount of
$1,500 at June 30, 2009 and is secured by the Operating Partnership’s existing
revolving credit facility.





On
May 10, 2006, the Operating Partnership guaranteed $23,200 of construction
debt held by University Village-Greensboro LLC (“LLC”) in order to receive a 25%
ownership stake in the venture with College Park Apartments.  The debt
matures on May 10, 2011. Construction was completed, and the student housing
community was occupied in August 2007. The Operating Partnership has determined
that it will not guarantee the debt after the construction loan is refinanced.
The debt has an outstanding balance of $23,156 at June 30, 2009.  On
October 30, 2008, the LLC borrowed an additional $1,200 which matures on
September 10, 2009 and has also been guaranteed by the Operating Partnership. In
October of 2007, the Operating Partnership entered into a note receivable with
the LLC in the amount of $845.  The note was interest only through
December 31, 2007 and accrued interest at 10% per annum.  On January
1, 2008, the entire principal balance was converted to a term loan maturing on
January 1, 2028 with principal and interest of 10% per annum being repaid on a
monthly basis.  On the maturity date, all unpaid principal and
interest are due in full.  As of June 30, 2009, the note has an
outstanding balance of $827 and is subordinated to the construction debt held by
the LLC discussed above.  The balance is reflected separately in the
accompanying condensed consolidated balance sheets. Additionally, the
Trust’s other investments in unconsolidated entities have outstanding mortgage
and construction indebtedness totaling $88,033 at June 30, 2009 that is not
guaranteed by the Operating Partnership.




20




As owners
and operators of real estate, environmental laws impose ongoing compliance
requirements on the Trust. The Trust is not aware of any environmental matters
or liabilities with respect to the student housing properties that would have a
material adverse effect on the Trust’s consolidated financial condition or
results of operations.





In the
normal course of business, the Trust is subject to claims, lawsuits and legal
proceedings. While it is not possible to ascertain the ultimate outcome of such
matters, in management’s opinion, the liabilities, if any, in excess of amounts
provided or covered by insurance, are not expected to have a material adverse
effect on our financial position, results of operations or
liquidity.





Under the
terms of the University Towers Partnership agreement, so long as the
contributing owners of such property hold at least 25% of the University Towers
Partnership units, the Trust has agreed to maintain certain minimum amounts of
debt on the property to avoid triggering gain to the contributing owners. If the
Trust fails to do this, the Trust must repay the contributing owners the amount
of taxes they incur.





Under the
terms of the purchase agreement with Place Properties, the Trust remains a party
to a tax indemnification agreement whereby a payment could be required to be
made to the former owner if any properties are sold within five years of the
purchase date.  The contingency expires in January 2011.





The
Operating Partnership entered into a letter of credit agreement to the benefit
of the lender in conjunction with the termination of the lease with Place
Properties on February 1, 2008. The letter of credit remains outstanding in the
amount of $500 at June 30, 2009 and is secured by the Operating Partnership’s
existing revolving credit facility.





After
being awarded a development consulting contract, the Trust will enter into
predevelopment consulting contracts with educational institutions to develop
student housing properties on their behalf.  The Trust will enter
into reimbursement agreements that provide for the Trust to be reimbursed for
the predevelopment costs incurred prior to the institution’s governing body
formally approving the final development contract.  At June 30, 2009
and December 31, 2008, the Trust had reimbursable predevelopment costs of
$2,623 and $910, respectively, which are reflected in other assets in the
accompanying condensed consolidated balance sheets.





The Trust
also has various operating lease commitments for corporate office space,
furniture and technology equipment which expire at various dates through
2015.





7.
Acquisition and development of real estate investments





On June
28, 2007, the Trust acquired land in Carbondale, Illinois for $1,099 in order to
develop a wholly owned student apartment community near Southern Illinois
University. After the acquisition, the Trust incurred an additional $20,580 in
costs to develop the first phase of the development which opened in August of
2008. The costs
incurred for the first phase have been classified in student housing properties,
net in the accompanying condensed consolidated balance sheets.The second
phase of the development started in 2008 and as of June 30, 2009 the Trust has
incurred $8,077 in development costs. During the six months ended June 30, 2009,
the Trust capitalized interest costs of $43 related to the second phase of the
development.





During
2008, the Trust also began development of a wholly owned student apartment
property located on the campus of Syracuse University.  The Trust will
own and manage the property under a long-term ground lease from Syracuse
University.  As of June 30, 2009, the Trust has incurred $21,171 in
development costs.  During the six months ended June 30, 2009, the
Trust capitalized interest costs of $339 related to the
development.





All costs
related to the development of student apartment communities are classified as
assets under development in the accompanying condensed consolidated balance
sheets until the development is complete and opens.




21





8.
Disposition of real estate investments and discontinued operations





On
April 7, 2009, the Trust sold the College Station student housing property
for a purchase price of $2,550.  The Trust received proceeds of $250
and a note receivable of $2,300. The note is interest only and accrues interest
at a rate of 3% per annum through August 31, 2009 and matures on December 31,
2009. Beginning on September 1, 2009, the note accrues interest at a rate
of 6% per annum and is payable in monthly installments through maturity. All
unpaid principal and interest is due at maturity. However, if no default exists
at the maturity date, the note may be extended to June 30, 2011. The note would
remain interest only at a rate of 6% per annum payable in monthly installments
through December 31, 2010; thereafter, payments of principal and interest (at a
rate of 6% per annum) would be made on a monthly basis. Any unpaid principal and
interest would be due in full on June 30, 2011.  The resulting net
gain on disposition of approximately $374 has been deferred against the note
receivable in accordance with SFAS No. 66, Accounting for Sales of Real
Estate.




The
results of operations are reflected as discontinued operations in the
accompanying condensed consolidated statements of operations for all periods
presented. The following table summarizes income/(loss)  from
discontinued operations for the three and six months ended June 30, 2009
and 2008:




Six
      months
            
            
            Six
      monthsEnded
      June 30,
            
            
            Ended
      June 30,2009
            
            
            2008Student
      housing leasing revenue
            
            $
            131
            
            
            $
            214Student
      housing leasing operating expenses
            
            
            124
            
            
            
            200Depreciation
      and amortization
            
            
            25
            
            
            
            48Redeemable
      noncontrolling interest
            
            
            —
            
            
            
            (1
            )Income/(loss)
      from discontinued operations attributable to Education Realty Trust,
      Inc.
            
            $
            (18
            )
            
            $
            (33
            )





Three
      months
            
            
            Three
      monthsEnded
      June 30,
            
            
            Ended
      June 30,2009
            
            
            2008Student
      housing leasing revenue
            
            $
            10
            
            
            $
            92Student
      housing leasing operating expenses
            
            
            12
            
            
            
            110Depreciation
      and amortization
            
            
            —
            
            
            
            24Redeemable
      noncontrolling interest
            
            
            —
            
            
            
            (1
            )Income/(loss)
      from discontinued operations attributable to Education Realty Trust,
      Inc.
            
            $
            (2
            )
            
            $
            (41
            )





During
the first quarter of 2008, the Trust sold the parking garage and land associated
with the University Towers residence hall to a unit holder for a loss of $512.
The Trust redeemed the unit holder’s units and received cash totaling $2,616.
The loss on the sale is included in student housing leasing operations expense
in the accompanying condensed consolidated statement of operations for the
six months ended June 30, 2008. The Trust simultaneously entered into a
40 year ground lease.





9.
Incentive plan





The Trust
adopted the Education Realty Trust, Inc. 2004 Incentive Plan (the “Plan”)
effective upon the closing of the Offering. The Plan provides for the grant of
stock options, restricted stock, restricted stock units, stock appreciation
rights, other stock-based incentive awards and PIUs to employees, directors and
other key persons providing services to the Trust.  As of June 30,
2009, the Trust had 824,000 shares of its common stock reserved for issuance
pursuant to the Plan, subject to adjustments for changes in the Trust’s capital
structure, including share splits, dividends and recapitalizations. The number
of shares reserved under the Plan is also subject to an annual adjustment,
beginning on January 1, 2006, so that the total number of shares reserved
under the Plan is equal to 4% of the aggregate number of shares outstanding on
the last day of the preceding fiscal year; provided that such annual increase
generally may not exceed 80,000 shares.




22





A
restricted stock award is an award of the Trust’s common stock that is subject
to restrictions on transferability and other restrictions as the Trust’s
compensation committee determines in its sole discretion on the date of grant.
The restrictions may lapse over a specified period of employment or the
satisfaction of pre-established criteria as our compensation committee may
determine. Except to the extent restricted under the award agreement, a
participant awarded restricted shares will have all of the rights of a
stockholder as to those shares, including, without limitation, the right to vote
and the right to receive dividends or distributions on the shares. Restricted
stock is generally taxed at the time of vesting. At June 30, 2009 and
December 31, 2008, unearned compensation totaled $355 and $657,
respectively, and will be recorded as expense over the applicable vesting
period. The value is determined based on the market value of the Trust’s common
stock on the grant date. During each of the six months ended June 30, 2009 and
2008, compensation expense of $302 was recognized in the accompanying condensed
consolidated statements of operations, related to the vesting of restricted
stock.





PIUs
are units in a limited liability company controlled by the Trust that holds
a special class of partnership interests in the Operating Partnership. For
purposes of the Plan, each PIU is deemed equivalent to an award of one share of
the Trust’s common stock and will entitle the owner of such unit to receive the
same quarterly per unit distributions as one common unit of the Operating
Partnership. This treatment with respect to quarterly distributions is similar
to the treatment of restricted stock awards, which will generally receive full
dividends whether vested or not. PIUs will not initially have full parity with
common units of the Operating Partnership with respect to liquidating
distributions. Upon the occurrence of specified capital equalization events,
PIUs may, over time, achieve full or partial parity with common units of the
Operating Partnership for all purposes and could accrete to an economic value
equivalent to the Trust’s common stock on a one-for-one basis. If such parity is
reached, PIUs may be exchanged into an equal number of the Trust’s shares of
common stock at any time. However, there are circumstances under which full
parity would not be reached. Until such parity is reached, the value that may be
realized for PIUs will be less than the value of an equal number of shares of
the Trust’s common stock, if there is any value at all. The grant or vesting of
PIUs is not expected to be a taxable transaction to recipients. Conversely, we
do not receive any tax deduction for compensation expense from the grant of
PIUs. PIUs are treated as noncontrolling interests in the accompanying condensed
consolidated financial statements at an amount equal to the holders’ ownership
percentage of the net equity of the Operating Partnership.





Total
compensation cost recognized in general and administrative expense in the
accompanying condensed consolidated statements of operations for the six months
ended June 30, 2009 and 2008, was $353 and $396,
respectively.  Additionally during each of the six months ended June
30, 2009 and 2008, the Trust issued 4,000 shares of common stock to an executive
officer and 4,000 shares to its independent directors pursuant to the
Plan.





A summary
of the stock-based incentive plan activity as of and for the six months ended
June 30, 2009 is as follows:





StockPIU’s
            
            
            Awards
      (1)
            
            
            TotalOutstanding
      at December 31, 2008
            
            
            275,000
            
            
            
            208,000
            
            
            
            483,000Granted
            
            
            5,000
            
            
            
            4,000
            
            
            
            9,000Forfeited
            
            
            —
            
            
            
            —
            
            
            
            —Outstanding
      at March 31, 2009
            
            
            280,000
            
            
            
            212,000
            
            
            
            492,000Granted
            
            
            —
            
            
            
            4,000
            
            
            
            4,000Forfeited
            
            
            (2,500
            )
            
            
            —
            
            
            
            (2,500
            )Outstanding
      at June 30, 2009
            
            
            277,500
            
            
            
            216,000
            
            
            
            493,500Vested
      at June 30, 2009
            
            
            277,500
            
            
            
            194,883
            
            
            
            472,383


(1)
            Includes
      restricted stock awards.





10.
Subsequent events





On July
10, 2009, our board of directors declared a distribution of $0.1025 per share of
common stock for the quarter ended on June 30, 2009. The distribution is payable
on August 14, 2009 to stockholders of record at the close of business on July
31, 2009.




23





Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.





(Dollars
in thousands, except selected property information and share data)





The
following discussion should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this Quarterly Report and the audited
consolidated financial statements and  notes thereto and MD&A
contained in our Annual Report on Form 10-K for the year ended December 31,
2008. Certain statements contained in this filing are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995, including but not limited to statements related to plans for future
acquisitions, our business and investment strategy, market trends and projected
capital expenditures. When used in this report, the words “expect,”
“anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate, “would,” “could,”
“should,” and similar expressions are generally intended to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which reflect our opinions only as of the date of
this Quarterly Report. We assume no obligation to update or supplement
forward-looking statements that become untrue because of subsequent events.
Forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. For further information
about these and other factors that could affect our future results, please see
“Item 1A. — Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2008 and Item IA “Risk Factors”.  Investors
are cautioned that any forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking
statements.





Overview





We are a
self-managed and self-advised real estate investment trust (“REIT”) engaged in
the ownership, acquisition and management of high quality student housing
communities. We also provide student housing development consulting services to
universities, charitable foundations and other third parties. We believe that we
are one of the largest private owners, developers and managers of high quality
student housing communities in the United States in terms of both total beds
owned and under management.





We earn
income from rental payments we receive as a result of our ownership of student
housing properties. We also earn income by performing property management
services and development consulting services for third parties through our
taxable REIT subsidiariesAllen & O’Hara Education Services, Inc.
(“AOES”) and Allen & O’Hara Development Company, LLC (“AODC”), respectively.
While we manage 100% of the properties we own, we do not recognize any fee
income from their management on a consolidated basis. Furthermore, we do not
recognize development fee income on a consolidated basis for properties that are
being developed for ownership by the Trust.





We have
elected to be taxed as a REIT for federal income tax purposes.





Our
Business Segments





We define
business segments by their distinct customer base and service provided.
Management has identified three reportable segments: student housing leasing,
management services and development consulting services. We evaluate each
segment’s performance based on pre-tax net operating income, which is defined as
income before depreciation, amortization, impairment losses, interest expense,
gains
(losses) on extinguishment of debt,equity in earnings of unconsolidated
entities, noncontrolling interests and discontinued operations. The accounting
policies of the reportable segments are described in more detail in the summary
of significant accounting policies in the footnotes to the financial statements.
Inter-company fees are reflected at the contractually stipulated
amounts.





Student
Housing Leasing





Student
housing leasing revenue represented approximately 88.3% of our revenue,
excluding operating expense reimbursements, for the six months ended June 30,
2009. Our revenue related to food service operations is included in this
segment. Additionally, for the first month of 2008, this segment included other
leasing revenue related to the Place lease which was terminated on February 1,
2008.




24





Unlike
multi-family housing where apartments are leased by the unit, student-housing
communities are typically leased by the bed on an individual lease liability
basis. Individual lease liability limits each resident’s liability to his or her
own rent without liability for a roommate’s rent. The number of lease
contracts that we administer is therefore equivalent to the number of beds
occupied instead of the number of apartment units. A parent or guardian is
required to execute each lease as a guarantor unless the resident provides
adequate proof of income.





Due to
our predominantly private bedroom accommodations, the high level of
student-oriented amenities, the fact that units are furnished and in most cases
rent includes utilities, cable TV and internet service and because of the
individual lease liability, we believe our properties can typically command
higher per-unit and per-square foot rental rates than most multi-family
properties in the same geographic markets. We are also typically able to command
higher rental rates than on-campus student housing, which tends to offer fewer
amenities.





The
majority of our leases commence mid-August and terminate the last day of July.
These dates generally coincide with the commencement of the universities’ fall
academic term and the completion of the subsequent summer school session. As
such, we are required to re-lease each property in its entirety each year,
resulting in significant turnover in our tenant population from year to year. In
2008 and 2007, approximately 69.3% and 68.5%, respectively, of our leased beds
were to students who were first-time residents at our properties. As a result,
we are highly dependent upon the effectiveness of our marketing and leasing
efforts during the annual leasing season that typically begins in November and
ends in August of each year. Our properties’ occupancy rates are therefore
typically stable during the August to July academic year but are susceptible to
fluctuation at the commencement of each new academic year.





Prior to
the commencement of each new lease period, mostly during the first two weeks of
August but also during September at some communities, we prepare the units for
new incoming tenants. Other than revenue generated by in-place leases for
returning tenants, we do not generally recognize lease revenue during this
period referred to as “Turn” as we have no leases in place. In addition, we
incur significant expenses during Turn to make our units ready for occupancy.
These expenses are recognized immediately. This lease Turn period results in
seasonality in our operating results during the third quarter of each
year.





Management
Services





Revenue
from our management services, excluding operating expense reimbursements,
represented approximately 5.9% of our revenue for the six months ended June 30,
2009. These revenues are typically derived from multi-year management agreements
under which management fees are typically 3-5% of leasing revenue. These
agreements typically have an initial term of five to ten years with a renewal
option for an additional five years. As part of the management agreements, there
are certain payroll and related expenses we pay on behalf of the property
owners. These costs are included in reimbursable operating expenses and are
required to be reimbursed to us by the property owners. We recognize the expense
and revenue related to these reimbursements when incurred. These operating
expenses are wholly reimbursable and therefore not considered by management when
analyzing the operating performance of our management services
business.





Development
Consulting Services





Revenue
from our development consulting services, excluding operating expense
reimbursements, represented approximately 5.8% of our revenue for the six months
ended June 30, 2009. Fees for these services are typically 3-5% of the total
project cost and are payable over the life of the construction period, which is
typically one to two years in length. We incur expenses that are reimbursable by
a project when awarded. Occasionally, the development consulting contracts
include a provision whereby the Trust can participate in project savings
resulting from successful cost management efforts.  These revenues are
recognized once all contractual terms have been satisfied and no future
performance requirements exist.  This typically occurs after
construction is complete.





We
recognize the expenses when incurred while the reimbursement revenue is not
recognized until the consulting contract is awarded. These operating expenses
are wholly reimbursable and therefore not considered by our management when
analyzing the operating performance of our third-party development consulting
services business. Also, at times, we will pay pre-development project expenses
such as architectural fees and permits if such are required prior to the
project’s financing being in place. We typically obtain a guarantee from the
owner for repayment of these project specific costs.




25





We
periodically enter into joint venture arrangements whereby we provide
development consulting services to third-party student housing owners in an
agency capacity. We recognize our portion of the earnings in each joint venture
based on our ownership interest, which is reflected as equity in earnings of
unconsolidated entities after net operating income in our statement of
operations. Our revenue and operating expenses could fluctuate from period to
period based on the extent we utilize joint venture arrangements to provide
third-party development consulting services.





The
amount and timing of future revenues from development consulting services will
be contingent upon our ability to successfully compete in public universities’
competitive procurement processes, our ability to successfully structure
financing of these projects and our ability to ensure completion of construction
within agreed construction timelines and budgets. To date, all of our
development projects have completed construction in time for their targeted
occupancy dates.





In 2007,
we began developing projects for our ownership and plan to increase
self-development activity going forward. During 2008, we opened our first wholly
owned, self-developed property servicing Southern Illinois
University.  At June 30, 2009, costs totaling $29,248 have been
capitalized related to ongoing developments at Syracuse University and a second
phase at Southern Illinois University.





Trends
and Outlook





Rents
and Occupancy





We manage
our properties to maximize revenues, which are primarily determined by two
components: rental rates and occupancy rates. We customarily adjust rental rates
in order to maximize revenues, which in some cases results in a lower occupancy
rate, but in most cases results in stable or increasing revenues from the
property. As a result, a decrease in occupancy may be offset by an increase in
rental rates and may not be material to our operations. Periodically,
certain of our markets experience increases in new on-campus student
housing being provided by universities and off-campus student housing being
provided by developers. This additional student housing both on and off campus
can create competitive pressure on rental rates and occupancy.





For the
six months ended June 30, 2009, same-community revenue per available bed
increased to $401 and same-community physical occupancy decreased to 90.0%
compared to revenue per available bed of $397 and physical occupancy of 92.7%
for the six months ended June 30, 2008. The results represent averages for the
Trust’s portfolio which are not necessarily indicative of every property in the
portfolio. As would be expected, individual properties can and do perform
both above and below these averages, and, at times, an individual property may
show a decline in total revenue due to local university and economic
conditions. Our management focus is to assess these situations and address
them as quickly as possible in an effort to minimize the Trust’s exposure and
reverse any negative trend.




On a
same-community basis, the 2008-2009 lease year has an average rate growth of
5.0% and an occupancy decline of approximately 1.1%, excluding three communities
in the currently challenging markets of Kalamazoo, Michigan, Gainesville,
Florida, and Oxford, Mississippi. These three properties have faced significant
new supply in their respective markets while enrollment at each school is flat
or declining. Combined, these communities experienced a 12.9% decline in
occupancy and a 3.7% decline in rate for the 2008-2009 lease term. We will
continue to focus on maximizing rental revenue and improving occupancy at these
properties, but it may take an unknown period of time for the imbalance to reach
a level of equilibrium.  In total, including these three communities,
same-community average rates for the 2008-2009 lease year grew about 3.3% and
occupancy declined approximately 2.9%.




As of
July 13th,
leasing for the fall of 2009 on a same-community basis reflected approximately
84.2% of beds applied for and 78.3% already leased compared to 81.9% and 77.6%,
respectively, at this time last year. Leasing at our legacy communities, which
are the same-communities, excluding the Place portfolio, reflected approximately
86.4% of beds applied for and 81.0% leased compared to 86.7% and 82.6%,
respectively, at this time last year. The Place Portfolio, which we began
managing in February 2008, reflects approximately 77.5% of the beds applied for
and 70.0% leased compared to 67.1% and 62.2%, respectively, at this time last
year.  Furthermore, we typically seek to ensure the guarantor has
acceptable credit before finalizing the lease. Leasing for the three properties
in the previously identified challenged markets shows 91.1% of beds applied for
and 88.0% leased compared to 73.7% applied for and 69.7% leased one year
ago.




26





Student
Housing Operating Costs





Same-community
operating expenses increased to $192 per bed in fiscal 2008 compared to $185 per
bed in fiscal 2007.  This increase was primarily attributable to a
rise in payroll related expenses, increased marketing expenses, higher utility
costs, and a loss on the sale of land and parking garage at our University
Towers community.  Excluding the impact of the land and parking garage
sale, we experienced operating expense growth of 3.4% in 2008 compared to 2.4%
in 2007.  As a response to higher than desired expense growth in
fiscal 2008 and due to significant declines in the economy a targeted cost
reduction plan was commenced in the fourth quarter of 2008 which has continued
in fiscal 2009.  Specifically, we have made selective staff reductions
and implemented a hiring freeze and a moratorium on wage increases at both the
property and corporate levels.  Furthermore, we are curbing
discretionary spending as we work to improve our margins and strengthen our
communities during the current volatile and unsettled US economic
conditions.  For the six months ended June 30, 2009, same-community
operating expenses were $171 per bed representing a decline of 6.5% year over
year.  This decrease is partially attributable to the loss on the land
and parking garage mentioned above; however, an improvement in property general
and administrative and maintenance expenses also contributed to the expense
improvement over the six months ended June 20, 2008.





Termination
of Lease with Place Properties, Inc.





On
February 1, 2008, the Trust terminated the lease with Place Properties, Inc.
(“Place”) for 13 properties owned by the Trust but previously operated and
managed by Place.  Under the termination agreement, the Trust received
a lease termination fee of $6,000. As a result of the lease termination, the
Trust began managing these properties and began recognizing the results of
operations for these properties in its consolidated financial statements as of
the lease termination date. Previously, the Trust recognized base rental income
of $13,740 annually for the lease and had the right to receive “Additional Rent”
annually if the properties exceeded certain criteria defined in the lease
agreement.  In the near term, the net operating income generated by
these properties is expected to be less than the rental income received under
the lease; thus, potentially reducing our net income from continuing operations
over the next 2 to 3 years. The Trust negotiated the lease termination fee
of $6,000 in part to offset the expected shortfall in operating results of the
communities.  Over time, we expect to be able to improve the operating
results of the Place Portfolio through revenue growth driven by improved
marketing and customer service strategies. However, as with all its communities,
management continually assesses each community and their respective markets to
determine if such growth is achievable or if other alternatives should be
pursued. The Place Portfolio opened the 2008-2009 lease year with an occupancy
of 81.9% compared to 87.8% for the prior lease year.





Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in our financial statements and related notes. In preparing these financial
statements, management has utilized all available information, including its
past history, industry standards and the current economic environment, among
other factors, in forming its estimates and judgments of certain amounts
included in the financial statements, giving due consideration to materiality.
The ultimate outcome anticipated by management in formulating its estimates may
not be realized. Application of the critical accounting policies below involves
the exercise of judgment and use of assumptions as to future uncertainties and,
as a result, actual results could differ from these estimates. In addition,
other companies in similar businesses may utilize different estimation policies
and methodologies, which may impact the comparability of our results of
operations and financial condition to those companies.





Student
Housing Leasing Revenue Recognition





Student
housing leasing revenue is comprised of all revenue related to the leasing
activities at our student housing properties and includes revenues from the
leasing of space, parking lot rentals and certain ancillary services. Revenue
from our food service operations is also included in this segment. Additionally,
this segment included other leasing revenue related to the Place Portfolio
lease, which was terminated February 1, 2008.  Additional information
is included below regarding revenue recognition for student housing food service
and other leasing revenue.




27





Students
are required to execute lease contracts with payment schedules that vary from
annual to monthly payments. Generally, a parental guarantee must accompany each
executed contract. Receivables are recorded when due. Leasing revenues and
related lease incentives and nonrefundable application and service fees are
recognized on a straight-line basis over the term of the contracts. Balances are
considered past due when payment is not received on the contractual due date.
Allowances for doubtful accounts are established by management when it is
determined that collection is doubtful.





Student
Housing Food Service Revenue Recognition





We
maintain a dining facility at University Towers, which offers meal plans to the
tenants as well as dining to other third-party customers. The meal plans
typically require upfront payment by the tenant covering the school semester and
the related revenue is recognized on a straight-line basis over the
corresponding semester.





Other
Leasing Revenue Recognition





Other
leasing revenue relates to our leasing of 13 properties we acquired from Place
on January 1, 2006. Simultaneous with the acquisition of the Place
Portfolio, the Trust leased the assets to Place and received base monthly rent
of $1,145 and had the right to receive “Additional Rent” annually if the
properties exceeded certain criteria defined in the lease agreement. Base rent
was recognized on a straight-line basis over the lease term and Additional Rent
was recognized only upon satisfaction of certain defined criteria. On February
1, 2008, the lease was terminated.  Under the termination agreement
the Trust received a lease termination fee totaling $6,000 in 2008, of which
$5,800 was recognized during the six months ended June 30, 2008.





Revenue
and Cost Recognition of Development Consulting Services





Costs
associated with the pursuit of third-party development consulting contracts are
expensed as incurred until such time as we have been notified of a contract
award or reimbursement has been otherwise guaranteed by the customer. At such
time, the reimbursable portion of such costs is recorded as a receivable.
Development consulting revenues are recognized using the percentage of
completion method as determined by construction costs incurred relative to the
total estimated construction costs. Occasionally, our development consulting
contracts include a provision whereby we can participate in project savings
resulting from our successful cost management efforts. We recognize these
revenues once all contractual terms have been satisfied and we have no future
performance requirements. This typically occurs after construction is complete.
Costs associated with development consulting services are expensed as incurred.
We generally receive a significant percentage of our fees for development
consulting services upon closing of the project financing, a portion of the fee
over the construction period and the balance upon substantial completion of
construction. Because revenue from these services is recognized for financial
reporting purposes utilizing the percentage of completion method, differences
occur between amounts received and revenues recognized. Differences also occur
between amounts recognized for tax purposes and those recognized for financial
reporting purposes. Because REITs are required to distribute 90% of taxable
income, our distribution requirement with respect to our income from third-party
services may exceed that reflected as net income for financial reporting
purposes from such activities.





We
periodically enter into joint venture arrangements whereby we provide
development consulting services to third-party student housing owners in an
agency capacity. We recognize our portion of the earnings in each joint venture
based on our ownership interest, which is reflected after net operating income
in our statement of operations as equity in earnings of unconsolidated entities.
Our revenue and operating expenses could fluctuate from period to period based
on the extent we utilize joint venture arrangements to provide third-party
development consulting services.




28





Student
Housing Property Acquisitions and Dispositions





Land,
land improvements, buildings and improvements and furniture, fixtures and
equipment are recorded at cost. Buildings and improvements are depreciated over
30 to 40 years, land improvements are depreciated over 15 years and
furniture, fixtures, and equipment are depreciated over 3 to 7 years.
Depreciation is computed using the straight-line method for financial reporting
purposes.




Acquisitions
of student housing properties are accounted for utilizing the purchase method in
accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 141,Business
Combinations, and accordingly, the acquired student housing
properties’ results of operations are included in the Trust’s results of
operations from the respective dates of acquisition. Prior to 2009,
pre-acquisition costs, which include legal and professional fees and other
third-party costs related directly to the acquisition of a property, were
accounted for as part of the purchase price. Appraisals, estimates of cash flows
and valuation techniques are used to allocate the purchase price of acquired
property between land, land improvements, buildings and improvements, furniture,
fixtures and equipment and identifiable intangibles such as amounts related to
in-place leases. On January 1, 2009 the Trust adopted SFAS No. 141R, which
prospectively changes the requirements for how an acquirer recognizes and
measures the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired.  SFAS No. 141R also enhances the disclosures to enable the
evaluation of the nature and financial effects of the business combination and
requires that pre-acquisition costs be expensed as incurred.  The
Trust will apply the provisions of SFAS No. 141R to all future
acquisitions.





Student
housing properties are classified as held for sale based on the criteria within
SFAS No. 144, Accounting
for the Impairment and Disposal of Long Lived Assets. When a student
housing property is identified as held for sale, fair value less cost to sell is
estimated. If fair value less cost to sell is less than the carrying amount of
the asset an impairment charge is recorded for the estimated loss. Depreciation
expense is no longer recorded once a student housing property has met the held
for sale criteria. The related carrying value of the property is recorded as
held for sale in the condensed consolidated balance sheet and operations of
student housing properties that are sold or classified as held for sale are
recorded as part of discontinued operations for all periods presented. For the
six months ended June 30, 2009 and 2008, no impairment losses on student housing
properties held for sale were recognized.





Repairs
and Maintenance





The costs
of ordinary repairs and maintenance are charged to operations when incurred.
Major improvements that extend the life of an asset beyond one year are
capitalized and depreciated over the remaining useful life of the asset. Planned
major repair, maintenance and improvement projects are capitalized when
performed. In some circumstances, the lenders require us to maintain a reserve
account for future repairs and capital expenditures. These amounts are not
available for current use and are recorded as restricted cash on our balance
sheet.





Long
Lived Assets — Impairment





In
accordance with SFAS No. 144, management is required to assess whether
there are any indicators that our real estate assets may be
impaired.  A property’s value is considered impaired if management’s
estimate of the aggregate future cash flows (undiscounted and without interest
charges) to be generated by the property, based on its intended use, is less
than the carrying value of the property. These estimates of cash flows are based
on factors such as expected future operating income, trends and prospects, as
well as the effects of demand, competition and other factors. To the extent
impairment has occurred, the loss will be measured as the excess of the carrying
amount of the property over the fair value of the property, thereby reducing our
net income.





Use
of Estimates





Significant
estimates and assumptions are used by management in determining the recognition
of third- party development consulting revenue under the percentage of
completion method, useful lives of student housing assets, the valuation of
goodwill, the initial valuations and underlying allocations of purchase price in
connection with student housing property acquisitions, the determination of fair
value for impairment assessments, and in recording the allowance for doubtful
accounts.  Actual results could differ from those
estimates.




29





We review
our assets, including our student housing properties, properties under
development, and goodwill for potential impairment indicators whenever events or
circumstances indicate that the carrying value might not be
recoverable.  Impairment indicators include, but are not limited to,
declines in our market capitalization, overall market factors, changes in cash
flows, significant decreases in net operating income and occupancies at our
operating properties, changes in projected completion dates of our development
projects, and sustainability of development projects.  Our tests for
impairment are based on the most current information available and if conditions
change or if our plans regarding our assets change, it could result in
additional impairment charges in the future.  However, based on our
plans with respect to our operating properties and those under development, we
believe the carrying amounts are recoverable.





Recently
Adopted Accounting Pronouncements





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), Business
Combinations(“SFAS No. 141R”). SFAS No. 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R
also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination and requires that
pre-acquisition costs be expensed as incurred. SFAS No. 141R is effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The adoption of SFAS No. 141R did not have a material impact on the Trust’s
consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51(“SFAS No. 160”). SFAS No. 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
otherthan the parent,
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest andthe valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No.
160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 is effective for financial statements issued
for fiscal years beginning after December 15, 2008. As a result of the adoption,
the Trust has reported nonredeemablenoncontrolling interests as a component of equity in the condensed
consolidated balance sheets and the net income or loss attributable to
noncontrolling interests has been separately identified in the condensed
consolidated statements of operations. The prior periods presented have also
been reclassified to conform to the current classification required by SFAS No.
160.





In June
2008, the FASB issued FSP No. Emerging Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities
(“FSP 03-6-1”). FSP 03-6-1 clarifies that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and are to be included in the
computation of earnings per share under the two-class method described in SFAS
No. 128, Earnings Per Share.This FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and requires all presented prior-period
earnings per share data to be adjusted retrospectively. The
adoption resulted in shares of unvested restricted stock being included in the
computation of earnings per share for all periods presented.The adoption
of FSP 03-6-1 did not have a material impact on the Trust’s consolidated
financial statements.





Recently
issued accounting pronouncements





In
May 2009, theFASB
issued SFAS No. 165, Subsequent Events. SFAS No.
165 is intended to establish general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. Specifically, this standard
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.  SFAS No. 165 is effective for
financial statements issued for fiscal years and interim periods beginning after
June 15, 2009 and will be applied prospectively.





In
June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), to improve financial reporting by enterprises involved
with variable interest entities by addressing (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable
Interest Entities, as a result of the elimination of the qualifying
special-purpose entity concept in FASB Statement No. 166, Accounting for Transfers of
Financial Assets, and (2) constituent concerns about the application of
certain key provisions of Interpretation 46(R), including those in which the
accounting and disclosures under the Interpretation do not always provide timely
and useful information about an enterprise’s involvement in a variable interest
entity. This statement is effective for financial statements issued for fiscal
years beginning after November 15, 2009, with earlier adoption prohibited.
The Trust is currently evaluating the impact of adopting SFAS No. 167 on its
consolidated financial statements.




30





In
June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards
Codification” and the Hierarchy of Generally Accepted Accounting
Principles. This standard replaces SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, and establishes only two levels of U.S. generally
accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The
FASB Accounting Standards Codification (the “Codification”) will become the
source of authoritative, nongovernmental GAAP, except for rules and
interpretive releases of the Securities and Exchange Commission (“SEC”), which
are sources of authoritative GAAP for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in the Codification
will become nonauthoritative. This standard is effective for financial
statements issued for fiscal years and interim periods ending after
September 15, 2009.   As the Codification was not intended to
change or alter existing GAAP, it will not have any impact on the Trust’s
consolidated financial statements.





Results
of Operations for the Six Months Ended June 30, 2009 and 2008





The
following table presents the results of operations for Education Realty Trust,
Inc. for the six months ended June 30, 2009 and 2008:


Six
      Months Ended June 30, 2009
              
              
              Six Months
      Ended June 30, 2008Student
              
              
              Development
              
              
              
              
              
              
              
              
              
              
              
              Student
              
              
              DevelopmentHousing
              
              
              Consulting
              
              
              Management
              
              
              
              
              
              
              
              
              Housing
              
              
              Consulting
              
              
              ManagementLeasing
              
              
              Services
              
              
              Services
              
              
              Adjustments
              
              
              Total
              
              
              Leasing
              
              
              Services
              
              
              Services
              
              
              Adjustments
              
              
              TotalRevenues:Student
      housing leasing revenue
              
              $
              56,221
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              56,221
              
              
              $
              52,944
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              52,944Student
      housing food service revenue
              
              
              1,059
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,059
              
              
              
              1,196
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,196Other
      leasing revenue
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              6,945
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              6,945Third-party
      development consulting services
              
              
              —
              
              
              
              2,716
              
              
              
              —
              
              
              
              —
              
              
              
              2,716
              
              
              
              —
              
              
              
              3,008
              
              
              
              —
              
              
              
              —
              
              
              
              3,008Third-party
      management services
              
              
              —
              
              
              
              —
              
              
              
              1,632
              
              
              
              —
              
              
              
              1,632
              
              
              
              —
              
              
              
              —
              
              
              
              1,807
              
              
              
              —
              
              
              
              1,807Intersegment
      revenues
              
              
              —
              
              
              
              1,048
              
              
              
              2,186
              
              
              
              (3,234
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,081
              
              
              
              (2,081
              )
              
              
              —Operating
      expense reimbursements
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,226
              
              
              
              4,226
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,140
              
              
              
              5,140Total
      revenues
              
              
              57,280
              
              
              
              3,764
              
              
              
              3,818
              
              
              
              992
              
              
              
              65,854
              
              
              
              61,085
              
              
              
              3,008
              
              
              
              3,888
              
              
              
              3,059
              
              
              
              71,040Operating
      expenses:Student
      housing leasing operations
              
              
              25,086
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              25,086
              
              
              
              25,031
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              25,031Student
      housing food service operations
              
              
              1,013
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,013
              
              
              
              1,128
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,128General
      and administrative
              
              
              —
              
              
              
              1,481
              
              
              
              3,679
              
              
              
              (81
              )
              
              
              5,079
              
              
              
              3
              
              
              
              1,454
              
              
              
              3,579
              
              
              
              —
              
              
              
              5,036Intersegment
      expenses
              
              
              2,186
              
              
              
              —
              
              
              
              —
              
              
              
              (2,186
              )
              
              
              —
              
              
              
              2,081
              
              
              
              —
              
              
              
              —
              
              
              
              (2,081
              )
              
              
              —Reimbursable
      operating expenses
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,226
              
              
              
              4,226
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,140
              
              
              
              5,140Total
      operating expenses
              
              
              28,285
              
              
              
              1,481
              
              
              
              3,679
              
              
              
              1,959
              
              
              
              35,404
              
              
              
              28,243
              
              
              
              1,454
              
              
              
              3,579
              
              
              
              3,059
              
              
              
              36,335Net
      operating income
              
              
              28,995
              
              
              
              2,283
              
              
              
              139
              
              
              
              (967
              )
              
              
              30,450
              
              
              
              32,842
              
              
              
              1,554
              
              
              
              309
              
              
              
              —
              
              
              
              34,705Nonoperating
      expenses(1)
              
              
              25,796
              
              
              
              (42
              )
              
              
              —
              
              
              
              —
              
              
              
              25,754
              
              
              
              26,850
              
              
              
              (41
              )
              
              
              —
              
              
              
              —
              
              
              
              26,809Income
      before equity in earnings (losses) of unconsolidated entities, income
      taxes, redeemable noncontrolling interests and discontinued
      operations
              
              
              3,199
              
              
              
              2,325
              
              
              
              139
              
              
              
              (967
              )
              
              
              4,696
              
              
              
              5,992
              
              
              
              1,595
              
              
              
              309
              
              
              
              —
              
              
              
              7,896Equity
      in earnings (losses) of unconsolidated entities
              
              
              148
              
              
              
              (2
              )
              
              
              —
              
              
              
              —
              
              
              
              146
              
              
              
              (26
              )
              
              
              (1
              )
              
              
              —
              
              
              
              —
              
              
              
              (27
              )Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations(2)
              
              $
              3,347
              
              
              $
              2,323
              
              
              $
              139
              
              
              $
              (967
              )
              
              $
              4,842
              
              
              $
              5,966
              
              
              $
              1,594
              
              
              $
              309
              
              
              $
              —
              
              
              $
              7,869





(1)
            
            Nonoperating
      expenses include interest expense, interest income, gains (losses) on
      extinguishment of debt, amortization of deferred financing costs,
      depreciation, and amortization of intangibles.(2)
            
            The
      following is a reconciliation of the reportable segments’ income before
      income taxes, redeemable noncontrolling interests and discontinued
      operations to the Trust’s consolidated income before income taxes,
      redeemable noncontrolling interests and discontinued operations for the
      six months ended June 30:




2009
            
            
            2008Income before
      income taxes, redeemable noncontrolling interests and discontinued
      operations for reportable segments
            
            $
            4,842
            
            
            $
            7,869Other
      unallocated corporate expenses
            
            
            (3,313
            )
            
            
            (3,284
            )Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations
            
            $
            1,529
            
            
            $
            4,585




31




Student
housing leasing





Student
housing operating statistics for the six months ended June 30, 2009 and 2008
were as follows:





Six
      months
            
            Six
      monthsended
            
            endedJune
      30,
            
            June
      30,
            
            FavorableAll
      communities:
            
            2009
            
            2008(9)
    (10)
            
            (Unfavorable)OccupancyPhysical
      (1)
            
            
            87.6
            %
            
            
            91.2
            %
            
            
            (3.6)
            %Economic
      (2)
            
            
            86.9
            %
            
            
            90.6
            %
            
            
            (3.7)
            %NARPAB
      (3)
            
            $
            355
            
            
            $
            359
            
            
            $
            (4)Other
      income per avail. bed (4)
            
            $
            23
            
            
            $
            20
            
            
            $
            3RevPAB
      (5)
            
            $
            378
            
            
            $
            379
            
            
            $
            (1)Operating
      expense per bed (6) (7)
            
            $
            169
            
            
            $
            176
            
            
            $
            7Operating
      margin (7)
            
            
            55.4
            %
            
            
            53.7
            %
            
            
            1.7
            %Design
      beds (8)
            
            
            148,710
            
            
            
            139,676
            
            
            
            9,034





Same
      communities:OccupancyPhysical
            
            
            90.0
            %
            
            
            92.7
            %
            
            
            (2.7)
            %Economic
            
            
            89.4
            %
            
            
            92.4
            %
            
            
            (3.0)
            %NARPAB
            
            $
            376
            
            
            $
            374
            
            
            $
            2Other
      income per avail. bed
            
            $
            25
            
            
            $
            24
            
            
            $
            1RevPAB
            
            $
            401
            
            
            $
            397
            
            
            $
            4Operating
      expense per bed (11)
            
            $
            171
            
            
            $
            178
            
            
            $
            7Operating
      margin (11)
            
            
            57.4
            %
            
            
            55.2
            %
            
            
            2.2
            %Design
      beds
            
            
            110,178
            
            
            
            110,206
            
            
            
            (28)




(1)
              Physical
      occupancy represents a weighted average of the month-end occupancies for
      the respective period.(2)
              Economic
      occupancy represents the effective occupancy calculated by taking net
      apartment rent accounted for on a GAAP basis for the respective period
      divided by market rent for the respective period.(3)
              NarPAB
      represents GAAP net apartment rent for the respective period divided by
      the sum of the design beds in the portfolio for each of the included
      months. Does not include food service revenue or other leasing
      revenue.(4)
              Represents
      other GAAP-based income for the respective period divided by the sum of
      the design beds in the portfolio for each of the included months. Other
      income includes service/app fees, late fees, termination fees, parking
      fees, transfer fees, damage recovery, utility recovery, and other
      misc.(5)
              Represents
      total revenue (net apartment rent plus other income) for the respective
      period divided by the sum of the design beds in the portfolio for each of
      the included months.


(6)
              Represents
      property-level operating expense excluding management fees, depreciation
      and amortization divided by the sum of the design beds for each of the
      included months.(7)
              For
      the six months ended June 30, 2008, approximately $4 per bed related to
      the loss on the sale of land and the parking garage at University Towers
      (see Note 8 in the condensed consolidated financial statements) is
      excluded.(8)
              Represents
      the sum of the monthly design beds in the portfolio during the
      period.(9)
              Information
      related to the Place Portfolio is included starting February 1, 2008 when
      the previous lease with Place was terminated.(10)
              This
      information excludes property information related to College Station
      (discontinued operations).(11)
              For
      the six months ended June 30, 2008, approximately $5 per bed related to
      the loss on the sale of land and the parking garage at University Towers
      (see Note 8 in the condensed consolidated financial statements) is
      excluded.




32




The
student housing operating statistics shown above for all communities reflect a
decline in physical occupancy of 3.6% and a decline in RevPAB of 0.3%. These
results are not indicative of the year over year performance of our existing
portfolio as they include the impact of assuming management of the Place
portfolio in February of 2008, whose underlying economics are currently
different from our existing communities as well as the impact of the Reserve at
Saluki Point which opened in August of 2008. For the six months ended June 30,
2009, the Place Portfolio had an average physical occupancy of 79.3%, RevPAB of
$299, and operating margins of 47.6% compared to 90.0%, $401, and 57.4%,
respectively, on a same-community basis.




Total
revenue in the student housing leasing segment was $57,280 for the six months
ended June 30, 2009. This represents a decrease of $3,805, or 6.3%, from the
same period in 2008. Student housing leasing revenue increased 6.2%, or $3,277
to $56,221.  This increase was offset by a decline in other leasing
revenue of $6,945 as a result of the February 1, 2008 Place lease termination
and related termination fee recognized in 2008 and a $137 decline in food
service revenue.  The student housing leasing revenue increase of
$3,277 included $1,790 related to one additional month of operating results from
the Place portfolio in 2009 compared to 2008 offset by a $359 decline in revenue
at the Place properties due to lower rates and lower occupancy.  The
Reserve at Saluki Point community, which opened in August of 2008, contributed
$1,520 of additional revenue.  Same-community revenue improved 0.7%
contributing $326 of growth as a result of a 3.4% improvement in rental rates
and a 0.3% increase in other income offset by an approximate 3.0% decline
in occupancies.





Operating
expenses in the student housing leasing segment were flat to prior year at
$28,285 for the six months ended June 30, 2009.  Student housing leasing
operations increased a total of $55, or 0.2%, over the prior
year.  Increases in operating expenses over the prior year were
incurred, including an increase of $750 related to one additional month of
operations at the Place portfolio in the period after taking the properties over
in February of 2008, $476 of additional expenses related to the Reserve at
Saluki Point community and $144 of pre-opening costs associated with the
Syracuse University community that is currently under
development.  These increases were offset by a $1,315, or 6.5%,
reduction in same-community operating expenses year over year.  The
lower same-community expenses are partially attributable to a $512 loss on the
sale of the University Towers land and parking garage in the prior
year.  However, specific cost reduction measures implemented in the
fall of 2008 drove a $409 reduction in payroll costs and a $405 reduction in
credit card fees, while timing and other factors combined with these measures
resulted in a $239 decline in other maintenance and turn costs.  These
improvements were partially offset by an increase in marketing and utilities
costs and real estate taxes.




33





Non-operating
expenses decreased $1,054 or 3.9% to $25,796 for the six months ended June
30, 2009, compared to the same period in 2008. This decrease was primarily
driven by a $531 decline in depreciation expense due to fully depreciated assets
that remain in service and an $830 gain on the extinguishment of debt resulting
from the refund of defeasance costs related to the Trust’s debt refinancing in
December of 2008.  The decrease was partially offset by a $127
increase in interest expense related to the construction debt associated
with the wholly-owned student housing communities in Carbondale, IL and
Syracuse, NY that are currently under development and a $116 increase in the
amortization of deferred financing fees associated with the debt refinancing in
December of 2008.





Equity in
earnings of unconsolidated entities represents our share of the net income or
loss related to four investments in unconsolidated entities that own student
housing communities. These communities are also managed by the Trust. For the
six months ended June 30, 2009, equity in earnings was $148 compared to equity
in losses of $26 in the prior year.  The improvement comes as a
result of better operating results from those properties.





Development
consulting services





The
following table represents the development consulting projects that were active
during the six months ended June 30, 2009 and 2008:





Recognized
      EarningsProject
            
            Beds
            
            Fee
      Type
            
            2009
            
            2008
            
            DifferenceUniversity
      of Michigan
            
            896
            
            Development
      fee
            
            $
            155
            
            
            $
            170
            
            
            $
            (15
            )University
      of Alabama — Tuscaloosa
            
            631
            
            Development
      fee
            
            
            —
            
            
            
            670
            
            
            
            (670
            )Slippery
      Rock University — Phase II
            
            746
            
            Development
      fee
            
            
            —
            
            
            
            504
            
            
            
            (504
            )Indiana
      University of Pennsylvania — Phase II
            
            1,102
            
            Development
      fee
            
            
            —
            
            
            
            975
            
            
            
            (975
            )Fontainebleu
      Renovation Project
            
            435
            
            Development
      fee
            
            
            50
            
            
            
            52
            
            
            
            (2
            )West
      Chester— Phase I
            
            1,197
            
            Development
      fee
            
            
            987
            
            
            
            497
            
            
            
            490Indiana
      University of Pennsylvania — Phase III
            
            1,084
            
            Development
      fee
            
            
            739
            
            
            
            140
            
            
            
            599Colorado
      State University — Pueblo I
            
            253
            
            Development
      fee
            
            
            354
            
            
            
            —
            
            
            
            354Colorado
      State University — Pueblo II
            
            500
            
            Development
      fee
            
            
            196
            
            
            
            —
            
            
            
            196Auraria
      Higher Education System
            
            685
            
            Development
      fee
            
            
            182
            
            
            
            —
            
            
            
            182Indiana
      University of Pennsylvania — Phase IV
            
            596
            
            Development
      fee
            
            
            53
            
            
            
            —
            
            
            
            53Southern
      Illinois University— Carbondale
            
            528
            
            Construction
      oversight fee
            
            
            86
            
            
            
            —
            
            
            
            86Syracuse
      University
            
            432
            
            Development
      fee
            
            
            962
            
            
            
            —
            
            
            
            962Development
      consulting services
            
            
            
            
            
            $
            3,764
            
            
            $
            3,008
            
            
            $
            756California
      University of Pennsylvania — Phase V
            
            356
            
            Development
      fee
            
            
            —
            
            
            
            (1
            )
            
            
            1Other
            
            
            
            
            
            
            (2
            )
            
            
            —
            
            
            
            (2
            )Equity
      in earnings of unconsolidated entities
            
            
            
            
            
            $
            (2
            )
            
            $
            (1
            )
            
            $
            (1
            )




34




Development
consulting services revenue increased $756, or 25.1%, to $3,764 for the six
months ended June 30, 2009, as compared to the same period in
2008.  The increase in revenue is indicative of an increase in the
number and size of projects.  As reflected in the table above, there
were eight development projects representing 5,486 beds and a renovation project
active in the six months ended June 30, 2009 as well as contingent fees of $182
recognized from the Auraria Higher Education System project that was completed
in August of 2007.  This is compared to five active projects
representing 5,025 beds, a renovation project and final fees received on the
previously closed project at the University of Alabama in 2008. The
inter-segment development revenue relates to fees recognized for projects at
Southern Illinois University – Carbondale and Syracuse University that Allen
&O’Hara Development Company (AODC) is providing development service for
communities owned by the Trust; therefore, they are eliminated in the
accompanying condensed consolidated financial statements.





General
and administrative expenses remained relatively flat to the same period last
year at approximately $1,500 for the six months ended June 30,
2009.





Management
services





Total
management services revenue decreased by $70, or 1.8%, to $3,818 for the six
months ended June 30, 2009 compared to the same period in 2008. Third-party
management fee revenue decreased $175, or 9.7%, to $1,632 for the six months
ended June 30, 2009.  The cancellation of a contract related to a five
property portfolio in Michigan, for which the owner chose to take management
in-house, contributed to $204 of the decrease and $146 came from the
cancellation of a contract in Illinois as a result of a sale of the
property.  These decreases were partially offset by $138 related to
four new contracts entered into at various times in 2008 and a net increase in
fees from existing contracts. Growth in our owned portfolio offset the decline
in third-party management fee revenue by contributing an increase of $105 in
intersegment revenue primarily related to six full months of managing the Place
Portfolio in 2009 compared to five months in 2008 and the opening of the Reserve
at Saluki Pointe in August of 2008.





General
and administrative costs for our third-party management services segment
increased $100 or 2.8% to $3,679 for the six months ended June 30, 2009.
This increase is due to higher overhead costs associated with managing the
portfolio.





Unallocated
corporate expenses





Unallocated
corporate expenses represent general and administrative expenses that are not
allocated to any of our business segments. For the six months ended June 30,
2009 unallocated corporate expenses remained relatively flat when compared to
the prior year at approximately $3,300.




35





Results
of Operations for the Three Months Ended June 30, 2009 and 2008





The
following table presents the results of operations for Education Realty Trust,
Inc. for the three months ended June 30, 2009 and 2008:





Three Months
      Ended June 30, 2009
              
              
              Three
      Months Ended June 30, 2008Student
              
              
              Development
              
              
              
              
              
              
              
              
              
              
              
              Student
              
              
              DevelopmentHousing
              
              
              Consulting
              
              
              Management
              
              
              
              
              
              
              
              
              Housing
              
              
              Consulting
              
              
              ManagementLeasing
              
              
              Services
              
              
              Services
              
              
              Adjustments
              
              
              Total
              
              
              Leasing
              
              
              Services
              
              
              Services
              
              
              Adjustments
              
              
              TotalRevenues:Student
      housing leasing revenue
              
              $
              27,501
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              27,501
              
              
              $
              26,713
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              26,713Student
      housing food service revenue
              
              
              466
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              466
              
              
              
              541
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              541Other
      leasing revenue
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,000
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,000Third-party
      development consulting services
              
              
              —
              
              
              
              1,259
              
              
              
              —
              
              
              
              —
              
              
              
              1,259
              
              
              
              —
              
              
              
              1,221
              
              
              
              —
              
              
              
              —
              
              
              
              1,221Third-party
      management services
              
              
              —
              
              
              
              —
              
              
              
              723
              
              
              
              —
              
              
              
              723
              
              
              
              —
              
              
              
              —
              
              
              
              832
              
              
              
              —
              
              
              
              832Intersegment
      revenues
              
              
              —
              
              
              
              574
              
              
              
              1,061
              
              
              
              (1,635
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,044
              
              
              
              (1,044
              )
              
              
              —Operating
      expense reimbursements
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,036
              
              
              
              2,036
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,521
              
              
              
              2,521Total
      revenues
              
              
              27,967
              
              
              
              1,833
              
              
              
              1,784
              
              
              
              401
              
              
              
              31,985
              
              
              
              32,254
              
              
              
              1,221
              
              
              
              1,876
              
              
              
              1,477
              
              
              
              36,828Operating
      expenses:Student
      housing leasing operations
              
              
              12,488
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              12,488
              
              
              
              13,036
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              13,036Student
      housing food service operations
              
              
              441
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              441
              
              
              
              495
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              495General
      and administrative
              
              
              —
              
              
              
              749
              
              
              
              1,711
              
              
              
              (44
              )
              
              
              2,416
              
              
              
              —
              
              
              
              723
              
              
              
              1,781
              
              
              
              —
              
              
              
              2,504Intersegment
      expenses
              
              
              1,061
              
              
              
              —
              
              
              
              —
              
              
              
              (1,061
              )
              
              
              —
              
              
              
              1,044
              
              
              
              —
              
              
              
              —
              
              
              
              (1,044
              )
              
              
              —Reimbursable
      operating expenses
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,036
              
              
              
              2,036
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,521
              
              
              
              2,521Total
      operating expenses
              
              
              13,990
              
              
              
              749
              
              
              
              1,711
              
              
              
              931
              
              
              
              17,381
              
              
              
              14,575
              
              
              
              723
              
              
              
              1,781
              
              
              
              1,477
              
              
              
              18,556Net
      operating income (loss)
              
              
              13,977
              
              
              
              1,084
              
              
              
              73
              
              
              
              (530
              )
              
              
              14,604
              
              
              
              17,679
              
              
              
              498
              
              
              
              95
              
              
              
              —
              
              
              
              18,272Nonoperating
      expenses(1)
              
              
              12,367
              
              
              
              (31
              )
              
              
              —
              
              
              
              —
              
              
              
              12,336
              
              
              
              13,230
              
              
              
              (10
              )
              
              
              —
              
              
              
              —
              
              
              
              13,220Income
      (loss) before equity in earnings of unconsolidated entities, income
      taxes, redeemable noncontrolling  interests and discontinued
      operations
              
              
              1,610
              
              
              
              1,115
              
              
              
              73
              
              
              
              (530
              )
              
              
              2,268
              
              
              
              4,449
              
              
              
              508
              
              
              
              95
              
              
              
              —
              
              
              
              5,052Equity
      in earnings of unconsolidated entities
              
              
              48
              
              
              
              (2
              )
              
              
              —
              
              
              
              —
              
              
              
              46
              
              
              
              (26
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (26
              )Income
      (loss) before taxes, redeemable noncontrolling interests and
      discontinued operations(2)
              
              $
              1,658
              
              
              $
              1,113
              
              
              $
              73
              
              
              $
              (530
              )
              
              $
              2,314
              
              
              $
              4,423
              
              
              $
              508
              
              
              $
              95
              
              
              $
              —
              
              
              $
              5,026





(1)
                Nonoperating
      expenses include interest expense, interest income, gains (losses) on
      extinguishment of debt, amortization of deferred financing costs,
      depreciation and amortization of intangibles.(2)
                The
      following is a reconciliation of the reportable segments’ income before
      income taxes, redeemable noncontrolling interest and discontinued
      operations to EDR’s consolidated income (loss) before income taxes,
      redeemable noncontrolling interest and discontinued operations determined
      under generally accepted accounting
principles:




2009
            
            
            
            2008Income before
      income taxes, redeemable noncontrolling interests and discontinued
      operations for reportable segments
            
            
            2,314
            
            
            
            5,026Other
      unallocated corporate expenses
            
            
            (1,632
            )
            
            
            (1,610
            )Income
      before income taxes, redeemable noncontrolling interests and discontinued
      operations
            
            $
            682
            
            
            $
            3,416





36





Student
housing leasing





Student
housing operating statistics for all owned and operated communities and Legacy
communities for the three months ended June 30, 2009 and 2008 were as
follows:





Three
      months
            
            Three
      monthsended
            
            endedJune
      30,
            
            June
      30,
            
            Favorable/All
      communities:
            
            2009
            
            2008(8)
            
            (unfavorable)OccupancyPhysical
      (1)
            
            
            85.8
            %
            
            
            88.8
            %
            
            
            (3.0)
            %Economic
      (2)
            
            
            84.3
            %
            
            
            87.4
            %
            
            
            (3.1)
            %NARPAB
      (3)
            
            $
            346
            
            
            $
            346
            
            
            $
            —Other
      income per avail. bed (4)
            
            $
            24
            
            
            $
            21
            
            
            $
            3RevPAB
      (5)
            
            $
            370
            
            
            $
            367
            
            
            $
            3Operating
      expense per bed (6)
            
            $
            168
            
            
            $
            179
            
            
            $
            11Operating
      margin
            
            
            54.6
            %
            
            
            51.2
            %
            
            
            3.4
            %Design
      beds (7)
            
            
            74,346
            
            
            
            72,784
            
            
            
            1,562Legacy
      communities:OccupancyPhysical
      (1)
            
            
            87.7
            %
            
            
            90.2
            %
            
            
            (2.5)
            %Economic
      (2)
            
            
            86.0
            %
            
            
            88.9
            %
            
            
            (2.9)
            %NARPAB
      (3)
            
            $
            363
            
            
            $
            361
            
            
            $
            2Other
      income per avail. bed (4)
            
            $
            27
            
            
            $
            25
            
            
            $
            2RevPAB
      (5)
            
            $
            390
            
            
            $
            386
            
            
            $
            4Operating
      expense per bed (6)
            
            $
            170
            
            
            $
            182
            
            
            $
            12Operating
      margin
            
            
            56.5
            %
            
            
            52.8
            %
            
            
            3.7
            %Design
      beds (7)
            
            
            55,080
            
            
            
            55,102
            
            
            
            (22
            )




(1)
            
            Physical
      occupancy represents a weighted average of the month-end occupancies for
      the respective period.(2)
            
            Economic
      occupancy represents the effective occupancy calculated by taking net
      apartment rent accounted for on a GAAP basis for the respective period
      divided by potential rent for the respective period.(3)
            
            NARPAB
      represents GAAP net apartment rent for the respective period divided by
      the sum of the design beds in the portfolio for each of the included
      months. Does not include food service revenue or other leasing
      revenue.(4)
            
            Represents
      GAAP-based other income for the respective period divided by the sum of
      the design beds in the portfolio for each of the included months. Other
      income includes service/application fees, late fees, termination fees,
      parking fees, transfer fees, damage recovery, utility recovery and other
      miscellaneous income.(5)
            
            RevPAB
      represents total revenue (net apartment rent plus other income) for the
      respective period divided by the sum of the design beds for each of the
      included months.(6)
            
            Represents
      property-level operating expenses excluding management fees and
      depreciation and amortization divided by the sum of the design beds for
      each of the included months.(7)
            
            Represents
      the sum of the monthly design beds in the portfolio during the
      period.(8)
            
            This
      information excludes property information related to College Station
      (discontinued operations).





Total
revenue in the student housing leasing segment was $27,967 for the three months
ended June 30, 2009.  This represents a decrease of $4,287 or 13.3%
from the same period in 2008.  Excluding a $5,000 decline in other
leasing revenue, related to the Place Portfolio lease termination fee recognized
in the second quarter of 2008, student housing leasing revenue was up $788 or
2.9% compared to the prior year.  This improvement included $754
related to the new community the Reserve at Saluki Point and $193 as a result of
a 0.9% increase in our legacy communities’ leasing revenue, which was driven by
rental rate increases of approximately 3.3% and a 0.4% increase from other
income offset by a 2.8% decline in occupancy.  These improvements were
offset by a decrease in leasing revenue at the Place portfolio of $159 or 2.9%
as a result of lower rates and occupancy compared to the prior
year.




37





Operating
expenses in the student housing leasing segment decreased $585 or 4.0% to
$13,990 for the three months ended June 30, 2009, compared to the same period in
2008. Student housing leasing operations decreased a total of $548 or 4.2% over
the prior year, including 7.1% and 4.4% reductions in operating expenses at the
Legacy and Place portfolio, respectively.  The Legacy community
improvement of 7.1% or $714 comes mainly from $263 in lower payroll costs and
$202 in lower credit card fee directly as a result of cost reduction measures
implemented in the fall of 2008.  The Place portfolio’ operating
expenses declined $129 quarter over quarter.  The decrease is
primarily attributable to a $97 decrease in maintenance and repair costs and a
$26 decrease in marketing expenses.  These decreases in operating
expenses were offset by an increase in operating expenses of $296 related to the
Reserve at Saluki Point.





Nonoperating
expenses decreased $863 or 6.5% to $12,367 for the three months ended June
30, 2009. This decrease was primarily driven by an $830 gain on extinguishment
of debt as a result of a refund of defeasance costs related to the Trust’s debt
refinancing in December of 2008.





Equity in
earnings of unconsolidated entities represents our share of the net income or
loss related to four investments in unconsolidated entities that own student
housing communities. These communities are also managed by the
Trust.  For the three months ended June 30, 2009 equity in earnings
was $48 compared to a loss of $26 in the prior year.  The improvement
comes as a result of better operating performance from those
properties.





Development
consulting services





The
following table represents the development consulting projects that were active
during the three months ended June 30, 2009 and 2008:





Recognized
      EarningsProject
            
            Beds
            
            Fee
      Type
            
            2009
            
            2008
            
            DifferenceUniversity
      of Michigan
            
            896
            
            Development
      fee
            
            $
            121
            
            
            $
            69
            
            
            $
            52Slippery
      Rock University — Phase II
            
            746
            
            Development
      fee
            
            
            —
            
            
            
            343
            
            
            
            (343
            )Indiana
      University of Pennsylvania — Phase II
            
            1,102
            
            Development
      fee
            
            
            —
            
            
            
            327
            
            
            
            (327
            )Fontainebleu
      Renovation Project
            
            435
            
            Development
      fee
            
            
            4
            
            
            
            39
            
            
            
            (35
            )West
      Chester— Phase I
            
            1,197
            
            Development
      fee
            
            
            469
            
            
            
            303
            
            
            
            166Indiana
      University of Pennsylvania — Phase III
            
            1,084
            
            Development
      fee
            
            
            266
            
            
            
            140
            
            
            
            126Colorado
      State University — Pueblo I
            
            253
            
            Development
      fee
            
            
            159
            
            
            
            —
            
            
            
            159Colorado
      State University — Pueblo II
            
            500
            
            Development
      fee
            
            
            187
            
            
            
            —
            
            
            
            187Indiana
      University of Pennsylvania — Phase IV
            
            596
            
            Development
      fee
            
            
            53
            
            
            
            —
            
            
            
            53Southern
      Illinois University— Carbondale
            
            528
            
            Construction
      oversight fee
            
            
            51
            
            
            
            —
            
            
            
            51Syracuse
      University
            
            432
            
            Development
      fee
            
            
            523
            
            
            
            —
            
            
            
            523Development
      consulting services
            
            
            
            
            
            $
            1,833
            
            
            $
            1,221
            
            
            $
            612Other
            
            
            
            
            
            
            (2
            )
            
            
            —
            
            
            
            (2
            )Equity
      in earnings of unconsolidated entities
            
            
            
            
            
            $
            (2
            )
            
            $
            —
            
            
            $
            (2
            )




38




Development
consulting services revenue increased $612 or 50.1% to $1,833 for the three
months ended June 30, 2009.  The majority of the increase stems from
intersegment revenue of $574 related to fees recognized for projects at Southern
Illinois University – Carbondale and Syracuse University.  AODC is
providing the development services for these communities which are owned by the
Trust; therefore, this revenue is eliminated in the accompanying condensed
consolidated financial statements. Third-party development consulting services
were up $38 on a comparable volume of development jobs year over
year.





General
and administrative costs in the third-party development consulting services
segment increased $26 or 3.6% to $749 for the three months ended June 30, 2009.
The increase relates to higher pursuit costs on projects that did not
materialize in 2009 compared to the same for 2008.





Nonoperating
expenses included $31 of interest income primarily related to the AODC fronting
predevelopment costs under a predevelopment agreement for which the AODC is
reimbursed with interest when the institution’s governing body formally approves
the final development contract and project financing is put in
place.





Management
services





Management
services revenue decreased by $92 or 4.9% to $1,784 for the three months ended
June 30, 2009. Third-party management fee revenue was down $109 or 13.1%,
while growth in our owned portfolio period over period, as discussed under
student housing leasing above, resulted in an increase of $17 by way of
intersegment revenue.  Third party fees declined approximately $190 as
a result of the cancellation of three contracts since the second quarter of 2008
including a five property portfolio in Michigan, for which the owner chose to
take management in-house.  These decreases were partially offset by
$22 related to a new contract signed in 2009 and a 6.3% increase in fees from
existing contracts.





General
and administrative costs for our third-party management services segment
decreased $70 to $1,711 for the three months ended June 30, 2009, due to cost
cutting measures implemented in the fourth quarter of 2008.





Unallocated
corporate expenses





Unallocated
corporate expenses represent general and administrative expenses that are not
allocated to any of our business segments. For the three months ended June 30,
2009 unallocated corporate expenses remained relatively flat when compared to
the prior quarter at approximately $1,600.





Funds
from Operations (FFO)





As
defined by the National Association of Real Estate Investment Trusts (“NAREIT”),
Funds from Operations, FFO, represents net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from sales of property, plus real estate
related depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect funds from operations on the same
basis. We present FFO available to all stockholders and unitholders because we
consider it an important supplemental measure of our operating performance and
believe it is frequently used by securities analysts, investors and other
interested parties in the evaluation of REITs, many of which present FFO when
reporting their results. As such, we also exclude the impact of noncontrolling
interest in our calculation. FFO is intended to exclude GAAP historical cost
depreciation and amortization of real estate and related assets, which assumes
that the value of real estate diminishes ratably over time. Historically,
however, real estate values have risen or fallen with market conditions. Because
FFO excludes depreciation and amortization unique to real estate, gains and
losses from property dispositions and extraordinary items, it provides a
performance measure that, when compared year over year, reflects the impact to
operations from trends in occupancy rates, rental rates, operating costs,
development activities and interest costs, providing perspective not immediately
apparent from net income.





We
compute FFO in accordance with standards established by the Board of Governors
of NAREIT in its March 1995 White Paper (as amended in November 1999
and April 2002), which may differ from the methodology for calculating FFO
utilized by other equity REITs and, accordingly, may not be comparable to such
other REITs. Further, FFO does not represent amounts available for management’s
discretionary use because of needed capital replacement or expansion, debt
service obligations or other commitments and uncertainties. FFO should not be
considered as an alternative to net income (loss) (computed in accordance with
GAAP) as an indicator of our financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as an indicator of our
liquidity, nor is it indicative of funds available to fund our cash needs,
including our ability to make distributions.




39





The
following table presents a reconciliation of our FFO available to our
stockholders and unitholders to our net income for the three and six months
ended June 30, 2009 and 2008:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      income attributable to Education Realty Trust, Inc.
            
            $
            231
            
            
            $
            3,318
            
            
            $
            664
            
            
            $
            4,207Loss
      on sale of student housing assets
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            512Student
      housing property depreciation and amortization of lease
      intangibles
            
            
            6,954
            
            
            
            7,070
            
            
            
            13,959
            
            
            
            14,497Equity
      portion of real estate depreciation and amortization on equity
      investees
            
            
            122
            
            
            
            123
            
            
            
            244
            
            
            
            248Depreciation
      and amortization of discontinued operations
            
            
            —
            
            
            
            24
            
            
            
            25
            
            
            
            48Noncontrolling
      interest
            
            
            (53
            )
            
            
            74
            
            
            
            157
            
            
            
            171Funds
      from operations
            
            $
            7,254
            
            
            $
            10,609
            
            
            $
            15,049
            
            
            $
            19,683





Liquidity
and Capital Resources





Amended
revolver and other indebtedness





The Trust
serves as the guarantor for any funds borrowed by the Operating Partnership
under the Amended Revolver. Additionally, the Amended Revolver is secured by a
cross-collateralized, first mortgage lien on five otherwise unmortgaged
properties.  The Amended Revolver had a term of three years and
matured on March 30, 2009.  However, the Operating Partnership
exercised its option to extend the maturity date until March 30, 2010, under
existing terms. The interest rate per annum applicable to the Amended Revolver
is, at the Operating Partnership’s option, equal to a base rate or London
InterBank Offered Rate (“LIBOR”) plus an applicable margin based upon our
leverage (2.64% at June 30, 2009).





The
maximum availability under the Amended Revolver is $100,000; however,
availability under the Amended Revolver is limited to a “borrowing base
availability” equal to the lesser of (i) 65% of the property asset value
(as defined in the amended agreement) of the properties securing the facility
and (ii) the loan amount which would produce a debt service coverage ratio
of no less than 1.30, with debt service based on the greater of two different
sets of conditions specified in the amended agreement. As of June 30, 2009, our
borrowing base was $46,212, we had $29,600 of borrowings outstanding and we had
letters of credit outstanding of $2,000; thus, our remaining availability was
$14,612. We do, however, have additional unmortgaged properties that can be
pledged against the Amended Revolver to increase total
availability.





The
Amended Revolver contains customary affirmative and negative covenants and
contains financial covenants that, among other things, require the Trust and its
subsidiaries to maintain certain minimum ratios of “EBITDA” (earnings before
payment or charges of interest, taxes, depreciation, amortization or
extraordinary items) as compared to interest expense and total fixed charges.
The financial covenants also include consolidated net worth and leverage ratio
tests.





The Trust
is prohibited from making distributions that exceed $1.20 per share unless prior
to and after giving effect to such action the total leverage ratio is less than
or equal to 60%. The amount of restricted payments permitted may be increased as
long as either of the following conditions is met: (a) after giving effect
to the increased restricted payment, the total leverage ratio shall remain less
than or equal to 60%; or (b) the increased restricted payment, when
considered along with all other restricted payments for the last 3 quarters,
does not exceed 95% of funds from operations for the applicable
period.





As the
current facility matures within nine months, the Operating Partnership has been
negotiating with and received a term sheet from KeyBank National Association for
a replacement of the existing Amended Revolver. The new credit facility would be
a senior secured revolving credit facility in an amount up to $100,000, with the
ability to expand the facility up to an additional $50,000. The term sheet
contemplates a three-year facility, which we can elect to extend for one
additional year (assuming no defaults there under and payment of an extension
fee). The closing of the new facility is subject to the negotiation and
execution of definitive loan documentation and the fulfillment of customary
conditions; accordingly, no assurance can be given that this facility will be
consummated on the terms described above or at all.




40





On
March 3, 2008, mortgage debt in the amount of $22,977, secured by the
student housing community referred to as University Towers, bearing interest at
an effective rate of 5.48%, matured and was repaid by the Trust with additional
borrowings on the Amended Revolver. On June 27, 2008, the Trust refinanced
the debt with a $25,000, interest only, fixed rate mortgage bearing interest at
5.99% through June 30, 2013. After the initial maturity, the Trust has the
option to extend the loan for 12 months with principal and interest equal
to LIBOR plus a 250 basis point margin per annum being repaid on a monthly
basis. The Trust used the proceeds from the refinancing to pay down the Amended
Revolver.





At
June 30, 2009, the Trust had $10,674 and $6,334 outstanding on construction
loans of $11,000 and $12,285, respectively, related to the development of phase
I and phase II of a wholly-owned student apartment community near Southern
Illinois University. The loans bear interest equal to LIBOR plus a 110 and 200
basis point margins, respectively, and are interest only through June 14, 2010.
Commencing on June 14, 2010, and annually thereafter, a debt service
coverage ratio calculated on a rolling 12 month basis, of not less than
1.25 to 1, must be maintained in order to extend the loans until June 28,
2012, with principal and interest being repaid on a monthly basis.





At June
30, 2009, the Trust had $3,917 outstanding on a $14,300 construction loan
related to the development of a wholly owned student apartment community at
Syracuse University. The loan bears interest equal to LIBOR plus a 110 basis
point margin and is interest only through September 29, 2011. Commencing
with the quarter ended June 30, 2011, and annually thereafter, a debt
service coverage ratio calculated on a rolling 12 month basis, of not less
than 1.25 to 1, must be maintained in order to extend the loan until
September 29, 2013, with principal and interest being repaid on a monthly
basis.





On
December 31, 2008, the Trust entered into a $222,000 Master Secured Credit
Facility with Fannie
Maeand used initial proceeds of approximately $197,735 to prepay
approximately $185,557 of mortgage debt that was due to mature in July of
2009.  The remaining proceeds were used to pay $4,295 in defeasance
costs and other costs related to the early repayment of the debt, to pay $2,052
in deferred financing costs, to pay down the Amended Revolver and to pay for
other corporate working capital needs.  The Trust recognized a loss of
$4,360 on the early extinguishment of debt related to the defeasance in 2008 and
received a refund of $830 related to defeasance costs during the three months
ended June 30, 2009.  The initial borrowings under the secured credit
facility consisted of fixed rate loans of approximately $15,492, $72,106 and
$60,263 with maturities of five, seven and ten-year terms, respectively. The
annual fixed interest rates are 5.99%, 6.02% and 6.02%, respectively. The
facility also provided five-year variable interest rate loans based on 30-day
LIBOR totaling approximately $49,874. The variable rate loans are currently
priced at a weighted average interest rate of 3.70% per annum.





In order
to hedge the interest rate risk associated with the variable rate loans under
the secured credit facility, the Operating Partnership purchased an interest
rate cap from the Royal Bank of Canada on December 22, 2008 for
$120.  The notional amount of the cap is $49,874, the cap will
terminate on December 31, 2013 and the cap rate is 7.0% per
annum.  The Operating Partnership has chosen not to designate the cap
as a hedge and will recognize all gains or losses associated with this
derivative instrument in earnings.





As of
June 30, 2009, we had borrowed approximately $197,735 under our existing secured
Master Credit Facility Agreement with Fannie Mae as discussed
above.  We are seeking to expand the committed principal amount
available under our credit facility with Fannie Mae to facilitate the
refinancing of a portion of the remaining $98,660 of mortgage debt related to
nine communities in our Place portfolio that matures in December
2009.  We received a letter from Red Mortgage Capital, Inc., a Fannie
Mae Delegated Underwriting and Servicing lender that would increase the maximum
amount available under our Master Credit Facility Agreement with Fannie Mae to
approximately $251,000 to $259,000.  The expanded facility would give
us the ability to draw an additional $53,000 to $61,000.  We expect to
add up to nine of the thirteen communities in our Place portfolio as collateral
for the expansion of this facility.  This facility expansion is
subject to negotiating an amendment to our existing agreement with Fannie Mae,
and no assurance can be given that we will be successful in completing such
expansion on the terms above or at all.


At June
30, 2009, the Trust had nine properties unencumbered by mortgage debt. Five of
those nine properties have, however, been pledged as collateral against any
borrowing under our Amended Revolver.




41





Liquidity
outlook and capital requirements





At June
30, 2009, we had $4,070 of cash, a decrease of $4,933 from December 31,
2008. During the six months ended June 30, 2009, we generated $24,349 of cash
from operations, and drew $9,832 on the construction loans related to the
company owned developments in Carbondale, Illinois and Syracuse, New
York.  This allowed us to invest $22,676 in new developments,
distribute $6,467 to our stockholders and unitholders, repay $3,300 on our line
of credit and fund other investment needs.





Our
current liquidity needs include funds for distributions to our stockholders and
unitholders, including those required to maintain our REIT status and satisfy
our current annual distribution target of $0.41 per share/unit, funds for
capital expenditures, funds for debt repayment and, potentially, funds for new
property acquisition and development. We generally expect to meet our short-term
liquidity requirements through net cash provided by the refinancing discussed
above, potential asset sales, the proceeds from possible equity
offerings if and when market conditions permit and cash flow from
operations.  Distributions for the six months ended June 30, 2009
totaled $6,467 or $0.22 per weighted average share/unit, compared to cash
provided by operations of $24,349, or $0.82 per weighted average
share/unit.  The Trust’s Board of Directors lowered the annual
dividend target from $0.82 to $0.41 per share/unit beginning in
2009.  The new dividend policy is expected to result in the Trust
retaining approximately $12,000 of additional cash in 2009, which will further
strengthen its liquidity.





We expect
our long-term liquidity requirements to be satisfied through growth in cash
generated by operations, potential asset sales and external sources of
debt and equity capital, including our secured credit facility and public
capital markets as well as private sources of capital. To the extent that we are
unable to maintain our Amended Revolver or an equivalent source of debt
financing, we will be more reliant upon the public and private capital markets
to meet our long-term liquidity needs. The stock market has recently experienced
extreme price and volume fluctuations.  These broad market
fluctuations could adversely impact our ability to utilize the capital
markets.





Based on
our closing share price of $4.29 on June 30, 2009, our total enterprise value
was $606,266.  With total debt outstanding on June 30, 2009 of
$479,093, our current debt to enterprise value was 79.0%.  With gross
assets outstanding on June 30, 2009 of $909,631, which excludes accumulated
depreciation of $127,190, our current debt to gross assets was
52.7%.





We have
$98,660 of mortgage debt due to mature in December of 2009 and management is
currently engaged in negotiating replacement financing for this debt maturity
with Red Mortgage Capital, Inc., a Fannie Mae Delegated Underwriting and
Servicing lender. If capital and equity markets continue to erode significantly
(or do not recover) and we can not find replacement financing, we will not have
enough existing liquidity (from operations or the Amended Revolver) to repay the
debt.  If that were to happen, management would pursue and expect to
obtain an extension from the current lender in order to provide additional time
to obtain replacement financing.  However, there can be no assurance
that these efforts would be successful. If these efforts are insufficient to
provide the required refinancing funds, the nine encumbered communities could be
turned over to the lender and as a result we could cross default our Amended
Revolver. Management has reviewed its cash flows and has identified plans that
could be implemented in an effort to repay the outstanding balance on the
Amended Revolver.  These plans could include elimination of or the
payment in kind of our dividends, suspension of capital spending, cost
reductions, and subject to appropriate market conditions, possible asset
dispositions and/or a potential capital event.  Management has
assessed the student housing assets that would remain in the portfolio and
currently believes those assets should be able to produce sufficient cash flows
to fund operations and service the remaining debt requirements in the near
future.





We intend
to invest in additional properties only as suitable opportunities arise. We also
plan to develop properties for our ownership and management. In the short term,
we intend to fund any acquisitions or developments with working capital,
borrowings under first mortgage, property secured debt, construction loans or
our Amended Revolver. We intend to finance property acquisitions and self
development projects over the longer term with the proceeds from potential
asset sales, additional issuances of common or preferred stock,
private capital in the form of joint ventures, debt financing and issuances of
units of our Operating Partnership. There can be no assurance, however, that
such funding will be obtained on reasonable terms, or at all, particularly in
light of current capital market conditions.





An
additional source of capital, subject to appropriate market conditions, is the
possible disposition of non-strategic properties. We continually assess all of
our properties, the markets they are in and the universities they serve to
determine if any dispositions are necessary or appropriate. We
are currently testing the market for three of our properties: The
Lofts, located in Orlando, Florida; NorthePointe, located in Tucson, Arizona;
and The Reserve at Clemson, located in Central, South Carolina. These student
housing communities contain a total of 2,232 beds in 731 apartment units and may
be sold individually or as a portfolio if appropriate market conditions exist.
These properties would be subject to the assumption of existing mortgage
financing secured by these properties. Interest rates on the mortgages range
from 5.55% to 5.59% per annum, and all mortgages have either full or partial
interest-only periods remaining on their respective terms. We can give no
assurance, however, that any of these properties will actually be sold or as to
the terms on which they may be sold. The net proceeds from
the sale of any asset would provide additional capital which would most
likely be used to pay down debt or possibly finance acquisition/development
growth or other operational needs.




42





Predevelopment
expenditures





Our
third-party development consulting activities have historically required us to
fund predevelopment expenditures such as architectural fees, permits and
deposits. Because the closing of a development project’s financing is often
subject to third-party delay, we cannot always predict accurately the liquidity
needs of these activities. We frequently incur these predevelopment expenditures
before a financing commitment has been obtained and, accordingly, bear the risk
of the loss of these predevelopment expenditures if financing cannot ultimately
be arranged on acceptable terms. However, we typically obtain a guarantee of
repayment of these predevelopment expenditures from the project owner, but no
assurance can be given that we would be successful in collecting the amount
guaranteed in the event that project financing is not obtained.





In 2007,
we began developing projects for the Trust’s ownership and plan to increase
self-development activity going forward. We opened the Trust’s first wholly
owned, self-developed property in August of 2008 which serves Southern Illinois
University. At June 30, 2009, costs totaling $29,248 have been capitalized
related to the ongoing developments at Syracuse University and a second phase at
Southern Illinois University. As opposed to our third-party development
services, all risk, exposure and capital requirements for these developments
remain with the Trust.





Long-term
liquidity requirements





Our
long-term liquidity requirements consist primarily of funds necessary for
scheduled debt maturities, renovations, expansion and other non-recurring
capital expenditures that need to be made periodically to our properties. We
expect to meet these needs through existing working capital, cash provided by
operations, additional borrowings under our Amended Revolver (or the replacement
facility discussed above), net proceeds from potential asset sales, the
issuance of equity instruments, including common or preferred stock, partnership
units or additional debt, if market conditions permit. We believe these sources
of capital will be sufficient to provide for our long-term capital needs.
Current market conditions (or a continuing deterioration in such conditions),
however, may make additional capital more expensive for us and could impact our
access to the capital markets. There can be no assurance that we will be able to
obtain additional financing under satisfactory conditions or at all or that we
will make any investments in additional properties.  Our Amended
Revolver is a material source to satisfy our long-term liquidity requirements.
As such, compliance with the financial and operating debt covenants is material
to our liquidity.  Non-compliance with the current covenants or the
inability to obtain a replacement facility before our current facility expires
would have a material adverse effect on our financial condition and liquidity.
As of June 30, 2009 we are in compliance with all covenants related to our
Amended Revolver.




43





Commitments





The
following table summarizes our contractual obligations as of June 30,
2009:





Payments
      due by PeriodLess
      than
            
            
            1-3
            
            
            3-5
            
            
            More
      than 51
      Year
            
            
            Years
            
            
            Years
            
            
            Years
            
            
            TotalCommitments
      and Contractual Obligations:Long-Term
      Debt Obligations(1)
            
            $
            100,235
            
            
            $
            57,308
            
            
            $
            100,243
            
            
            $
            221,307
            
            
            $
            479,093Contractual
      Interest Obligations(2)
            
            
            12,464
            
            
            
            37,424
            
            
            
            28,492
            
            
            
            25,312
            
            
            
            103,692Operating
      Lease and Future Purchase Obligations (3)
            
            
            2,409
            
            
            
            8,194
            
            
            
            7,080
            
            
            
            947
            
            
            
            18,630Capital
      Reserve Obligations(4)
            
            
            1,584
            
            
            
            2,736
            
            
            
            2,560
            
            
            
            2,582
            
            
            
            9,462Total
            
            $
            116,692
            
            
            $
            105,662
            
            
            $
            138,375
            
            
            $
            250,148
            
            
            $
            610,877




(1)
            
            Includes
      required monthly principal amortization and amounts due at maturity on
      first mortgage debt secured by student housing properties and amounts due
      under Amended Revolver and Term Loan agreements. The first mortgage debt
      does not include $1,000 of unamortized debt premium.(2)
            
            Includes
      contractual fixed-rate interest payments.(3)
            
            Includes
      future minimum lease commitments under operating lease obligations and
      future purchase obligations for advertising.(4)
            
            Includes
      future annual contributions to the capital reserve as required by certain
      mortgage debt.




44


Distributions





We are
required to distribute 90% of our REIT taxable income (excluding capital gains)
on an annual basis in order to qualify as a REIT for federal income tax
purposes. Accordingly, we intend to make, but are not contractually bound to
make, regular quarterly distributions to holders of our common stock. All such
distributions are authorized at the discretion of our board of directors. We may
be required to use borrowings under our revolving credit facility, if necessary,
to meet REIT distribution requirements and maintain our REIT
status.   Additionally, we may make certain distributions
consisting of both cash and shares to meet REIT distribution requirements. We
consider market factors and our performance in addition to REIT requirements in
determining distribution levels.





In
January 2009, in an effort to increase financial stability, the Trust’s Board of
Directors lowered the annual dividend target from $0.82 to $0.41 per
share/unit.  The 2009 dividend policy is expected to result in the
Trust retaining approximately $12.0 million of cash, which will strengthen our
liquidity.





On July
10, 2009, our Board of Directors declared a distribution of $0.1025 per share of
common stock for the quarter ending on June 30, 2009. The distribution is
payable on August 14, 2009 to stockholders of record at the close of business on
July 31, 2009.





Off-Balance
Sheet Arrangements





On
May 10, 2006, the Operating Partnership guaranteed $23,200 of construction
debt held by University Village-Greensboro LLC in order to receive a 25%
ownership stake in the venture with College Park Apartments ($23,156 outstanding
at June 30, 2009). Construction was completed and the student housing community
was occupied in August 2007. The Operating Partnership has determined that
it will not guarantee the debt after the construction loan is refinanced which
is expected to occur in December of 2009. On October 30, 2008, the LLC borrowed
an additional $1,200 which matures on September 10, 2009 and has also been
guaranteed by the Operating Partnership.





Additionally,
as discussed in note 3 to the condensed consolidated financial statements,
we hold investments in unconsolidated entities. These unconsolidated entities
have third-party mortgage and construction indebtedness totaling $88,033 at June
30, 2009 which is not guaranteed by the Operating Partnership.





Inflation





Our
student housing leases typically do not have terms that extend beyond twelve
months. Accordingly, although on a short-term basis we would be required to bear
the impact of rising costs resulting from inflation, we have the opportunity to
raise rental rates at least annually to offset such rising costs. However, our
ability to raise rental rates may be limited by a weak economic environment,
increased competition from new student housing in our primary markets or a
reduction in student enrollment at our principal universities.





Item 3.
Quantitative and Qualitative Disclosures about Market Risk.





Our
future income, cash flows and fair values relevant to financial instruments are
dependent upon prevailing market interest rates. Market risk refers to the risk
of loss from adverse changes in market prices and interest rates. The Trust’s
interest rate risk objective is to limit the impact of interest rate
fluctuations on earnings and cash flows and to lower its overall borrowing
costs. To achieve this objective, the Trust manages its exposure to fluctuations
in market interest rates for its borrowings through the use of fixed rate debt
instruments to the extent that reasonably favorable rates are
obtainable.




45





For fixed
rate debt, interest rate changes affect the fair market value but do not impact
net income to common stockholders or cash flows. Conversely, for floating rate
debt, interest changes generally do not affect the fair market value but do
impact net income to common stockholders and cash flows, assuming other factors
are held constant. At June 30, 2009, we had fixed rate debt of $378,959. Holding
other variables constant a 100 basis point increase in interest rates would
cause a $12,816 decline in the fair value for our fixed rate debt. Conversely, a
100 basis point decrease in interest rates would cause a $13,679 increase in the
fair value of our fixed rate debt. At June 30, 2009, 79.1% of the outstanding
principal amounts of our mortgage notes payable on the properties we own have
fixed interest rates with a weighted average rate of 6.11% and an average term
to maturity of 4.31 years.





At June
30, 2009, we also had $29,600 outstanding on the Amended Revolver. The interest
rate per annum applicable to the Amended Revolver is, at the Operating
Partnership’s option, equal to a base rate or LIBOR plus an applicable margin
based upon our leverage.





At June
30, 2009, we had $10,674 and $6,334 outstanding on construction loans in the
amount of $11,000 and $12,285, respectively, related to the development of a
wholly owned student apartment community near Southern Illinois University. The
loans bear interest equal to LIBOR plus a 110 and 200 basis point margins,
respectively, and are interest only through June 14, 2010. Commencing on
June 14, 2010, and annually thereafter, a debt service coverage ratio
calculated on a rolling 12 months basis, of not less than 1.25 to 1, must
be maintained in order to extend the loans until June 28, 2012, with
principal and interest being repaid on a monthly basis.





We
borrowed $3,917, out of an available $14,300, related to the development of a
wholly owned student apartment community at Syracuse University. The
construction loan bears interest equal to LIBOR plus a 110 basis point margin
and is interest only through September 29, 2011. Commencing with the
quarter ended June 30, 2011, and annually thereafter, a debt service
coverage ratio calculated on a rolling 12 months basis, of not less than
1.25 to 1, must be maintained in order to extend the loan until
September 29, 2013, with principal and interest being repaid on a monthly
basis.





Additionally,
in 2008, we borrowed $49,874 in variable rate debt to refinance mortgage
debt.   The loans bear interest at 30-day LIBOR plus an
applicable margin and mature on January 1, 2014.  In order to hedge
the interest rate risk associated with these loans, the Operating Partnership
purchased an interest rate cap from the Royal Bank of Canada on December 22,
2008 for $120.  The interest rate cap effectively limits the interest
rate on the $49,874 of refinanced mortgage debt at 7.0% per annum through
December 31, 2013. The Operating Partnership has chosen not to designate the cap
as a hedge and will recognize all gains or losses associated with this
derivative instrument in earnings.





We do
not, and do not expect to, use derivatives for trading or speculative purposes,
and we expect to enter into contracts only with major financial institutions.





Item 4.
Controls and Procedures.





Management’s
Evaluation of Disclosure Controls and Procedures





The Trust
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Trust’s filings under the Securities
Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and to
ensure that such information is accumulated and communicated to the Trust’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. The
Trust also has investments in unconsolidated entities which are not under its
control. Consequently, the Trust’s disclosure controls and procedures with
respect to these entities are necessarily more limited than those it maintains
with respect to its consolidated subsidiaries.





Our
management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of the design and
operation of the Trust’s disclosure controls and procedures pursuant to
Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on their evaluation
as of June 30, 2009, our Chief Executive Officer and Chief Financial Officer
have concluded that the Trust’s disclosure controls and procedures were
effective.




46




Changes
in Internal Control Over Financial Reporting





During
the six months ended June 30, 2009, the Trust continued with the implementation
of a financial reporting analyses package. There were no other changes in the
Trust’s internal control over financial reporting that materially affected, or
are reasonably likely to materially affect, the Trust’s internal control over
financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the
Exchange Act).





PART
II





OTHER
INFORMATION





Item 1.
Legal Proceedings





In the
normal course of business, we are subject to claims, lawsuits and legal
proceedings. While it is not possible to ascertain the ultimate outcome of such
matters, in management’s opinion, the liabilities, if any, in excess of amounts
provided or covered by insurance, are not expected to have a material adverse
effect on our financial position, results of operations or liquidity.





Item 1A.
Risk factors





The
discussion of the Trust’s business and operations should be read together with
the risk factors contained below and in Item 1A of our Annual Report on Form
10-K for the year ended December 31, 2008 which describes various risks and
uncertainties to which we are or may be subject. These risks and uncertainties
have the potential to affect the Trust’s business, financial condition, results
of operations, cash flows and prospects in a material adverse manner. Except as
set forth below, as of June 30, 2009, there have been no material changes to the
risk factors set forth in the Trust’s annual report for the year ended December
31, 2008.





Our
student housing communities have previously been – and in the future may
be – subject to impairment charges, which could adversely affect our
results of operations and funds from operations.





We are
required to periodically evaluate our properties for impairment indicators. A
property’s value is considered impaired if management’s estimate of the
aggregate future cash flows (undiscounted and without interest charges) to be
generated by the property, based on its intended use, is less than the carrying
value of the property. These estimates of cash flows are based on factors such
as expected future operating income, trends and prospects, as well as the
effects of interest and capitalization rates, demand and occupancy, competition
and other factors.





During
2008, management determined that due to declining occupancy and trends at one
student housing community the carrying amount of that property may not be
recoverable. In accordance with SFAS No. 144, management estimated the
fair value of the property and recorded a $1.6 million impairment loss in the
consolidated statement of operations.  Ongoing adverse market and
economic conditions and market volatility make it difficult to value our student
housing communities. These factors may result in uncertainty
in valuation estimates and instability in the estimated value of our
student housing communities which in turn could result in a substantial decrease
in the value of the communities and significant impairment
charges.





We
continually assess our student housing communities to determine if any
dispositions are necessary or appropriate.
We are currently testing the market for three of our student housing
communities, and may seek to sell certain other student housing communities over
the next several years. No assurance can be given that we will be able to
recover the current carrying amount of our student housing communities in the
future. Our failure to do so would require us to recognize additional impairment
charges for the period in which we reached that conclusion, which could
materially and adversely affect us and our results of operations and funds from
operations.





Our
indebtedness is substantial and could impair our ability to obtain additional
financing or have other adverse consequences.





As of
June 30, 2009, our consolidated debt outstanding, excluding unamortized debt
premium of $1 million, was approximately $479 million, which represents
approximately 79% of our total market capitalization (defined as the market
value of our outstanding common stock plus the principal amount of our
outstanding debt) at that time. As of June 30, 2009, the balance at
maturity of total consolidated debt (after giving effect to amortization through
maturity) was approximately $479 million, including $100 million, $50 million,
$7 million, $68 million and $254 million currently scheduled to mature in 2009,
2010, 2011, 2012 and thereafter, respectively.




47





Our
substantial leverage could have important consequences. For example, it
could:





·
            result
      in the acceleration of a significant amount of debt for non-compliance
      with the terms of such debt or, if such debt contains cross-default or
      cross-acceleration provisions, other
debt;


·
            result
      in the loss of assets due to foreclosure or sale on unfavorable terms,
      which could, in turn, create taxable income and tax liabilities without
      accompanying cash proceeds;


·
            restrict
      our access to new capital;


·
            materially
      impair our ability to borrow unused amounts under existing financing
      arrangements or to obtain additional financing or refinancing on favorable
      terms or at all;


·
            require
      us to continue to dedicate a substantial portion of our cash flow to
      paying principal and interest on our indebtedness, reducing the cash flow
      available to fund our business or to pay dividends,
      including dividends necessary to maintain our REIT qualification, or
      to use for other purposes;


·
            increase
      our vulnerability to the ongoing economic
  downturn;


·
            limit
      our ability to withstand competitive pressures;
  and/or


·
            reduce
      our flexibility to respond to changing business and economic
      conditions.





If any of
the foregoing occurs, our business, financial condition, liquidity, results of
operations, funds from operations and prospects could be materially and
adversely affected, and the trading price of our common stock could decline
significantly.





The
recent and ongoing credit and liquidity crisis may limit our access to capital
and have a material adverse effect on our ability to meet our debt
payments, pay dividends to our stockholders or make future investments
necessary to implement our business plan.





In order
to meet our debt payments, pay dividends to our stockholders or make future
investments necessary to implement our business plan, we may need to raise
additional capital. Recently, the global capital and credit markets
have experienced extraordinary turmoil and upheaval, characterized by the
bankruptcy, failure or sale of various financial institutions and an
unprecedented level of intervention from the U.S. federal government. This
disruption in the credit markets, the repricing of credit risk and the
deterioration of the financial and real estate markets have made
it increasingly difficult for REITs and other companies to access
capital. Adverse market conditions include greater stock price
volatility, significantly less liquidity, widening of credit spreads and a lack
of price transparency. It is difficult to predict how long these conditions will
persist and the extent to which our results of operations, funds from
operations, financial condition and liquidity may be adversely affected.
This market turmoil and tightening of credit have also led to an increased lack
of consumer confidence and widespread reduction of business activity generally
which may adversely impact us, including our ability to acquire and dispose of
assets and continue our development pipeline.





If
current levels of market disruption and volatility continue or worsen, we may
not be able to obtain new debt financing or refinance our maturing debt on
favorable terms or at all. In addition, our future access to the equity markets
could be limited. Any such financing or refinancing issues could materially and
adversely affect us.





While we
currently have no reason to believe that we will be unable to access our credit
facilities in the future, concern about the stability of the markets generally
and the strength of borrowers specifically has led many lenders and
institutional investors to reduce and, in some cases, eliminate funding to
borrowers. In addition, the financial institutions that are parties to our
secured revolving credit facility, our Fannie Mae secured credit facility and
other debt documents might have incurred losses or might have reduced capital
reserves on account of their prior lending to borrowers, their holdings of
certain mortgage securities or their other financial relationships, in part
because of the general weakening of the U.S. economy and the increased financial
instability of many borrowers. As a result, these financial institutions might
be or become capital constrained and might tighten their lending standards or
become insolvent. If they experience shortages of capital and liquidity, or if
they experience excessive volumes of borrowing requests from other borrowers
within a short period of time, these lenders might not be able or willing to
honor their funding commitments to us, which would adversely affect our ability
to draw on our credit facilities and, over time, could negatively impact our
ability to consummate acquisitions, repay indebtedness as it matures, fund
capital expenditures or pay dividend to our stockholders. Continued
adverse conditions in the credit markets in future years could also adversely
affect the availability and terms of future borrowings, renewals or
refinancings.




48





As with
other public companies, the availability of debt and equity capital depends, in
part, upon the market price of our common stock and investor demand which,
in turn, depends upon various market conditions that change from time to time.
Among the market conditions and other factors that may affect the market price
of our common stock is the market’s perception of our current and
future financial condition, liquidity, growth potential, earnings, and cash
distributions. Our failure to meet the market’s expectation with regard to any
of these other items would likely adversely affect the market price of our
common stock, possibly materially. If we cannot access capital or we cannot
access capital upon acceptable terms, we may be required to liquidate one
or more investments in properties at times that may not permit us to realize the
maximum return on those investments, which could also result in adverse tax
consequences to us. We cannot assure you that we will be able to raise the
necessary capital to meet our debt service obligations, pay
dividends to our stockholders or make future investments necessary to
implement our business plan, and the failure to do so could have a material
adverse effect on us.





Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds





Issuer Purchases of Equity
Securities





During
the three months ended June 30, 2009, in connection with our Amended and
Restated Dividend Reinvestment and Stock Purchase Plan for our common
stockholders, we directed the plan administrator to purchase 1,203 shares of our
common stock for $4.08 in the open market pursuant to the dividend reinvestment
component of the plan with respect to our dividend for the second quarter of
2009.  We also directed the plan administrator to purchase 2,311
shares of our common stock for $4.54 in the open market for investors pursuant
to the direct stock purchase component of the plan.  The following
chart summarizes these purchases of our common stock for the three months ended
June 30, 2009.








Period
            
            Total
      Number
              of Shares
      Purchased(1)
            
            
            Average
      Price Paid per Share
            
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
            
            
            Maximum
      Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
      Under the Plans or ProgramsApril
      1-30, 2009
            
            
            795
            
            
            $
            4.67
            
            
            
            ―
            
            
            
            ―May
      1-31, 2009
            
            
            2,196
            
            
            
            4.18
            
            
            
            ―
            
            
            
            ―June
      1-30, 2009
            
            
            523
            
            
            
            4.74
            
            
            
            ―
            
            
            
            ―Total
            
            
            3,514
            
            
            $
            4.41
            
            
            
            ―
            
            
            
            ―


_______________________


(1)
            All
      shares purchased in the open market pursuant to the terms of our Amended
      and Restated Dividend Reinvestment and Stock Purchase
  Plan.




Item 3.
Defaults upon Senior Securities.





None.




49





Item 4.
Submission of Matters to a Vote of Security Holders.





On May 20, 2009, we held our 2009 annual
meeting of stockholders at the Trust’s corporate headquarters in Memphis,
Tennessee. During the meeting, our stockholders voted on the following three
proposals:





Proposal
1:





Director
nominees Paul O. Bower, Monte J. Barrow, William J. Cahill, III, John L. Ford
and Wendell W. Weakley were elected to serve as directors by a plurality of
votes cast at the meeting. Shares on this proposal were voted as
follows:


For
            
            WithheldPaul
      O. Bower
            25,406,458
            
            1,132,852Monte
      J. Barrow
            25,533,216
            
            1,006,094William
      J. Cahill, III
            25,633,446
            
            905,865John
      L. Ford
            25,558,495
            
            980,816Wendell
      W. Weakley
            25,546,836
            
            992,474





Proposal
2:





Deloitte
& Touche LLP was ratified as the Trust’s independent registered public
accounting firm for the 2009 fiscal year by a majority of the shares represented
at the meeting. Shares on this proposal were voted as follows:


For
            Against
            Broker
      Non-Votes26,349,002
            132,337
            ―





Proposal
3:





Stockholders
reapproved the performance goals used for performance-based awards granted under
EDR’s 2004 Incentive Plan by a majority of the shares represented at the
meeting. Shares on this proposal were voted as follow:


For
            Against
            Broker
      Non-Votes25,224,528
            1,218,957
            ―





Item 5. Other Information.





None.





Item 6.
Exhibits.





The exhibits listed on the accompanying
Exhibit Index are filed or incorporated by reference (as stated therein) as
part of this Quarterly Report on Form 10-Q.





50





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





EDUCATION
      REALTY TRUST, INC.Date:
      July 20, 2009
            
            By
      /s/ Paul O. BowerPaul O.
      BowerPresident,
      Chief Executive Officer andChairman
      of the Board of Directors(Principal
      Executive Officer)Date:
      July 20, 2009
            
            By
      /s/ Randall H. BrownRandall H.
      BrownExecutive
      Vice President, Chief FinancialOfficer,
      Treasurer and Secretary(Principal
      Financial Officer)Date:
      July 20, 2009
            
            By
      /s/ J. Drew KoesterJ. Drew
      KoesterVice
      President, Assistant Secretary and Chief Accounting
Officer(Principal
      Accounting Officer)





51








EXHIBIT INDEX3.1
            Second
      Articles of Amendment and Restatement of Education Realty Trust, Inc.
      (Incorporated by reference to Exhibit 3.1 to the Trust’s Amendment No. 2
      to its Registration Statement on Form S-11 (File No. 333-119264), filed on
      December 10, 2004.)3.2
            Amended
      and Restated Bylaws of Education Realty Trust, Inc. (Incorporated by
      reference to Exhibit 3.2 to the Trust’s Current Report on Form 8-K, filed
      on February 20, 2009.)4.1
            Form
      of Certificate for Common Stock of Education Realty Trust, Inc.
      (Incorporated by reference to Exhibit 4.1 to the Trust’s Amendment No. 5
      to its Registration Statement on Form S-11 (File No. 333-119264), filed on
      January 24, 2005.)31.1
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
      Exchange Act, as amended.31.2
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
      Exchange Act, as amended.32.1*
            Section
      906 Certification of Chief Executive Officer.32.2*
            Section
      906 Certification of Chief Financial Officer.




*
            This
      Exhibit is hereby furnished to the SEC as an accompanying document and is
      not deemed “filed” for purposes of Section 18 of the Securities Exchange
      Act of 1934 or otherwise subject to the liabilities of that Section, nor
      shall it be deemed incorporated by reference into any filing under the
      Securities Act of 1933 or the Securities Exchange Act of
    1934.




52