##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q [Mark One]þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2005 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.  Maryland
    
    20-1869228(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) 259-2500 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes
þ No o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ As of May 13, 2005, the latest practicable date, the Registrant had outstanding 22,034,000 shares
of common stock, $0.01 par value per share.




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EDUCATION REALTY TRUST, INC.
FORM 10-Q
Quarter Ended March 31, 2005  
 TABLE OF CONTENTS PART I
FINANCIAL INFORMATION PageItem 1.
    
    Financial Statements.Condensed Consolidated Balance Sheets of Education Realty Trust,
Inc. as of March 31, 2005 (unaudited) and December
31, 2004 and Combined Balance Sheet of Education Realty
Trust Predecessor as of December 31, 2004
    
    
    1Condensed Consolidated and Combined Statements of Operations of
Education Realty Trust, Inc. for the period January 1, 2005
through January 30, 2005 and for the period January 31, 2005
through March 31, 2005 and for Education Realty Trust
Predecessor for the period January 1, 2005 through January
30, 2005 and for the three months ended March 31, 2004 (all
unaudited)
    
    
    2Condensed Consolidated and Combined Statements of Cash Flows of
Education Realty Trust, Inc. for the period January 1, 2005
through January 30, 2005 and for the period January 31,
2005 through March 31, 2005 and for Education Realty
Trust Predecessor for the period January 1, 2005 through
January 30, 2005 and for the three months ended March 31,
2004 (all unaudited)
    
    
    3Notes to Condensed Consolidated and Combined Financial Statements (unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits
    
    
    27Signatures
    
    
    
    
    29EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEO & CFO




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##### Table of Contents



PART I
FINANCIAL INFORMATION 
 Item 1. Financial Statements. EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR 
 CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
(in thousands, except share and per share data) March 31, 2005
    
    
    December 31, 2004Consolidated
    
    
    Consolidated
    
    
    CombinedEducation Realty
    
    
    Education Realty
    
    
    Education RealtyTrust, Inc.
    
    
    Trust, Inc.
    
    
    Trust Predecessor(Unaudited)AssetsStudent housing properties, net
    
    $
    552,932
    
    
    $
    
    
    
    $
    83,785Corporate office furniture, net
    
    
    968
    
    
    
    
    
    
    
    Cash and cash equivalents
    
    
    47,568
    
    
    
    1
    
    
    
    2,883Restricted cash and short-term investments
    
    
    5,416
    
    
    
    
    
    
    
    1,102Student contracts receivable, net
    
    
    163
    
    
    
    
    
    
    
    87Management fee receivable from third party, net
    
    
    334
    
    
    
    
    
    
    
    161Goodwill and other intangibles
    
    
    6,460
    
    
    
    
    
    
    
    Other assets
    
    
    6,909
    
    
    
    3,790
    
    
    
    856Total assets
    
    $
    620,750
    
    
    $
    3,791
    
    
    $
    88,874Liabilities and stockholders and predecessor owners equityLiabilitiesMortgage loans, net of premium/discount
    
    $
    288,908
    
    
    $
    
    
    
    $
    81,111Revolving line of credit
    
    
    
    
    
    
    497
    
    
    
    Note payable to affiliate
    
    
    
    
    
    
    
    
    
    
    485Accounts payable and accrued expenses
    
    
    6,449
    
    
    
    
    
    
    
    1,642Accounts payable affiliate
    
    
    363
    
    
    
    3,515
    
    
    
    799Deferred revenue
    
    
    4,089
    
    
    
    
    
    
    
    3,048Total liabilities
    
    
    299,809
    
    
    
    4,012
    
    
    
    87,085Minority interest
    
    
    29,947
    
    
    
    
    
    
    
    Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    Stockholders and predecessor owners equity:Common stock, $.01 par value, 200,000,000 shares
authorized, 21,857,200 shares issued and outstanding
    
    
    219
    
    
    
    
    
    
    
    Preferred shares, $0.01 par value, 50,000,000 shares
authorized, no shares issued and outstanding
    
    
    
    
    
    
    
    
    
    
    Unearned deferred compensation
    
    
    (2,836
    )
    
    
    
    
    
    
    Additional paid in capital
    
    
    305,770
    
    
    
    1
    
    
    
    Loan to unitholder
    
    
    (5,996
    )
    
    
    
    
    
    
    Warrants
    
    
    375
    
    
    
    
    
    
    
    Accumulated deficit
    
    
    (6,538
    )
    
    
    (222
    )
    
    
    Predecessor owners equity
    
    
    
    
    
    
    
    
    
    
    1,789Total stockholders and predecessor owners equity
    
    
    290,994
    
    
    
    (221
    )
    
    
    1,789Total liabilities and stockholders and predecessor owners
equity
    
    $
    620,750
    
    
    $
    3,791
    
    
    $
    88,874
 See accompanying notes
to the condensed consolidated and combined financial statements. 1




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EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR 
 CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited) Education
    
    
    Education Realty
    
    
    Education Realty
    
    
    Education RealtyRealty Trust, Inc.
    
    
    Trust, Inc.
    
    
    Trust Predecessor
    
    
    Trust PredecessorConsolidated
    
    
    Consolidated
    
    
    Combined
    
    
    CombinedJanuary 31 to
    
    
    January 1 to
    
    
    January 1 to
    
    
    Three months endedMarch 31, 2005
    
    
    January 30, 2005
    
    
    January 30, 2005
    
    
    March 31, 2004Revenues:Student housing leasing revenue
    
    $
    12,676
    
    
    $
    
    
    
    $
    1,772
    
    
    $
    5,721Third-party development services
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    368Third-party management services
    
    
    289
    
    
    
    
    
    
    
    103
    
    
    
    336Operating expense reimbursements
    
    
    686
    
    
    
    
    
    
    
    671
    
    
    
    1,267Total revenues
    
    
    13,660
    
    
    
    
    
    
    
    2,546
    
    
    
    7,692Operating expenses:Student housing leasing operations
    
    
    5,830
    
    
    
    
    
    
    
    779
    
    
    
    2,504General and administrative
    
    
    4,760
    
    
    
    10
    
    
    
    367
    
    
    
    896Depreciation and amortization
    
    
    5,759
    
    
    
    
    
    
    
    260
    
    
    
    773Reimbursable operating expenses
    
    
    686
    
    
    
    
    
    
    
    671
    
    
    
    1,267Total operating expenses
    
    
    17,035
    
    
    
    10
    
    
    
    2,077
    
    
    
    5,440Operating income (loss)
    
    
    (3,375
    )
    
    
    (10
    )
    
    
    469
    
    
    
    2,252Nonoperating expenses:Interest
    
    
    2,577
    
    
    
    
    
    
    
    479
    
    
    
    1,404Exit fees on early repayment
of mortgages
    
    
    1,084
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred financing costs
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    41Interest income
    
    
    (279
    )
    
    
    
    
    
    
    
    
    
    
    Total nonoperating expenses
    
    
    3,498
    
    
    
    
    
    
    
    479
    
    
    
    1,445Income (loss) before equity in earnings of
unconsolidated entities, income taxes and
minority interest
    
    
    (6,873
    )
    
    
    (10
    )
    
    
    (10
    )
    
    
    807Equity in earnings of unconsolidated
entities
    
    
    71
    
    
    
    
    
    
    
    27
    
    
    
    422Income (loss) before income taxes and
minority interest
    
    
    (6,802
    )
    
    
    (10
    )
    
    
    17
    
    
    
    1,229Taxes
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss) before minority interest
    
    
    (6,736
    )
    
    
    (10
    )
    
    
    17
    
    
    
    1,229Minority interest
    
    
    (431
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (6,305
    )
    
    $
    (10
    )
    
    $
    17
    
    
    $
    1,229Earnings per share information:Loss per share  basic and diluted
    
    $
    (0.29
    )Weighted average common shares
outstanding-basic and diluted
    
    
    21,853,599
 See accompanying notes
to the condensed consolidated and combined financial statements. 2




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EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR 
 CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited) Education Realty
    
    
    Education Realty
    
    
    Education Realty
    
    
    Education RealtyTrust, Inc.
    
    
    Trust, Inc.
    
    
    Trust Predecessor
    
    
    Trust PredecessorConsolidated
    
    
    Consolidated
    
    
    Combined
    
    
    CombinedJanuary 31 to
    
    
    January 1 to
    
    
    January 1 to
    
    
    Three months endedMarch 31, 2005
    
    
    January 30, 2005
    
    
    January 30, 2005
    
    
    March 31, 2004Operating activities:Net income (loss)
    
    $
    (6,305
    )
    
    $
    (10
    )
    
    $
    17
    
    
    
    1,229Adjustments to reconcile net income (loss)
to net cash from operating activitiesDepreciation and amortization
    
    
    5,759
    
    
    
    
    
    
    
    246
    
    
    
    773Amortization
of deferred financing costs
    
    
    116
    
    
    
    
    
    
    
    14
    
    
    
    41Amortization
of unamortized debt premiums/discounts
    
    
    3
    
    
    
    Distributions
from unconsolidated entities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Noncash
compensation expense related to PIUs and restricted stock
    
    
    4,155
    
    
    
    
    
    
    
    
    
    
    
    Equity in
earnings of unconsolidated entities
    
    
    (71
    )
    
    
    
    

    
    
    (27
    )
    
    
    (422
    )Minority
interests
    
    
    (431
    )
    
    
    
    
    
    
    
    
    
    
    Change in operating assets and liabilities
(net of acquisitions)

    
    
    (5,186
    )
    
    
    10
    
    
    
    (2,442
    )
    
    
    (2,060
    )Net cash
provided by (used in) operating activities
    
    
    (1,960
    )
    
    
    
    
    
    
    (2,192
    )
    
    
    (409
    )Investing activities:Property acquisitions, net of cash acquired
    
    
    (147,658
    )
    
    
    
    

    
    
    (25
    )
    
    
    Earnest
money required for letters of intent
    
    
    (350
    )
    
    
    
    

    
    
    
    
    
    
    Purchase of
corporate furniture and equipment
    
    
    (841
    )
    
    
    
    
    
    
    
    
    
    
    Investment
in student housing properties
    
    
    (131
    )
    
    
    
    
    
    
    
    
    
    
    (61
    )Net cash used in investing activities
    
    
    (148,980
    )
    
    
    
    

    
    
    (25
    )
    
    
    (61
    )Financing activitiesPayment of
mortgage notes
    
    
    (114,916
    )
    
    
    
    
    
    
    (98
    )
    
    
    (310
    )Debt
issuance costs
    
    
    (2,231
    )
    
    
    
    
    
    
    
    
    
    
    Repayment
of line of credit
    
    
    (502
    )
    
    
    
    
    
    
    
    
    
    
    Loan to unitholder
    
    
    (5,996
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds
from Offering
    
    
    349,600
    
    
    
    
    
    
    
    
    
    
    
    Payment of
Offering costs
    
    
    (26,963
    )
    
    
    
    
    
    
    
    
    
    
    Distributions to owners, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (835
    )Repayment of notes payable affiliate
    
    
    (485
    )
    
    
    
    
    
    
    
    
    
    
    20Net cash
provided by (used in) financing activities
    
    
    198,507
    
    
    
    
    
    
    
    (98
    )
    
    
    (1,125
    )Net
increase (decrease) in cash and cash equivalents
    
    
    47,567
    
    
    
    
    
    
    
    (2,315
    )
    
    
    (1,595
    )Cash and cash equivalents, beginning of period
    
    
    1
    
    
    
    1
    
    
    
    2,883
    
    
    
    2,476Cash and cash equivalents, end of period
    
    $
    47,568
    
    
    $
    1
    
    
    $
    568
    
    
    $
    881Supplemental
disclosure of cash flow information:Interest paid
    
    $
    2,545
    
    
    
    
    
    
    $
    471
    
    
    $
    1,389Supplemental disclosure of noncash activities:Prepaid
Offering
costs charged against equity
    
    
    2,218
    
    
    
    
    
    
    
    
    
    
    
    Units issued
in the Formation Transactions
    
    
    26,340
    
    
    
    
    
    
    
    
    
    
    
    Warrants
issued in the Formation Transactions
    
    
    375
    
    
    
    
    
    
    
    
    
    
    
    Debt assumed
in property acquisitions net of premium/discount
    
    
    402,306
    
    
    
    
    
    
    
    
    
    
    
    
 See accompanying notes
to the condensed consolidated and combined financial statements. 3




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EDUCATION REALTY TRUST
INC., AND SUBSIDIARIES ANDEDUCATION REALTY TRUST PREDECESSOR 
 NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
March 31, 2005
(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 to succeed to the business of a group of entities collectively referred to herein as the EDR
Predecessor. The EDR Predecessor was not a legal entity, but rather a combination of entities
under common management. 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. Paul O. Bower (the Promoter) contributed $1
for 100 shares of the Trust upon its formation. The Trust, as the sole general partner of Education Realty Operating Partnership, LP, a
Delaware limited partnership (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 will account for
the Operating Partnership using the consolidation method. Paul O. Bower, directly and through the
contribution of his interests in the EDR Predecessor, is a limited partner in 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 subsidiaries of the
Operating Partnership to third parties and to joint ventures in which the Trust is invested. 2. The offering and formation transactions The Trust completed the initial public offering (the Offering) of its common shares on
January 31, 2005. The Trust sold 21,850,000 shares of common stock, including 2,850,000 shares
related to the full exercise of the over-allotment option by the underwriters of the Offering, at a
price of $16.00 per share. The Offering raised net proceeds of approximately $320.4 million, after
underwriting discounts and offering expenses of approximately $29.2 million. The Trust contributed
the net proceeds of the Offering for 100% of the general partnership interests and a majority of
the limited partnership interests in the Operating Partnership. Concurrently, the Operating
Partnership used approximately $37,697 of Offering proceeds and issued units approximating $18,345
in estimated value to directly or indirectly acquire the EDR Predecessor entities. The Operating Partnership also acquired 14 properties referred to as the JPI portfolio
simultaneous with the Offering. The purchase price approximated $409,254 (including estimated
transaction costs of $7,628). The Operating Partnership assumed total first mortgage debt of
$311,500, 4




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and repaid $93,360 with the use of the net proceeds of the Offering. Additionally the
Operating Partnership issued warrants approximating $375 in value and Operating Partnership units
approximating $7,995 in estimated value. The acquisition of the EDR Predecessor and the JPI
portfolio is referred to herein as the Formation Transactions. 3. Summary of significant accounting policies Basis of presentation The accompanying consolidated and combined 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 consolidated financial statements of the Trust represent
the assets and liabilities and operating results of the Trust and its majority owned subsidiaries.
The accompanying combined financial statements of the EDR Predecessor represent the assets and
liabilities and operating results of the entities comprising the EDR Predecessor. The historical
combined financial statements of the EDR Predecessor are presented as the Promoter, either directly
or indirectly, managed the EDR Predecessor prior to the Trust acquiring those interests in
connection with the Formation Transactions. All significant intercompany balances and transactions
have been eliminated in the accompanying consolidated and combined financial statements. Reclassifications Certain prior period amounts have been reclassified to conform to the current period
presentation, which includes balance sheets presented in an unclassified format. 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 and EDR Predecessor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, and the EDR
Predecessors combined financial statements and related notes, together with the Trusts annual
report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange
Commission. Student housing properties Land, buildings and improvements, and furniture, fixtures and equipment are recorded at cost.
Buildings and improvements are depreciated over 30 years. Furniture, fixtures, and equipment are
depreciated over estimated useful lives ranging from three to five 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 results of operations are included in the results of operations
from the respective dates of acquisition. Pre-acquisition costs, which include legal and
professional fees and other third party costs related directly to the acquisition of the property,
are accounted for as part of the purchase price. Independent appraisals, estimates of cash flows,
and valuation techniques are used to allocate the purchase price of acquired property between land,
buildings and improvements, furniture, 5




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fixtures and equipment and other identifiable intangibles such as amounts related to in-place
leases, acquired above and below market leases and tenant relationships. 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. As of March 31,
2005, management determined that no indicators of impairment existed. Investment in unconsolidated joint ventures and limited liability companies The Operating Partnership accounts for its investments in unconsolidated joint ventures and
limited liability companies using the equity method whereby the cost of an investment is adjusted
for the share of equity in earnings of the respective investment reduced by distributions received.
The earnings and distributions of the unconsolidated joint ventures and limited liability
companies are allocated based on each owners respective ownership interests. 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. Offering costs Specific incremental costs directly attributable to the Offering were deferred and charged
against the gross proceeds of the Offering. 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 using the effective interest method. Income taxes The Trust intends to qualify as a real estate investment trust (REIT) under the Internal
Revenue Code of 1986, as amended (the Code). The Trust will generally not be subject to federal
income tax to the extent that it distributes as least 90% of its taxable income for each tax year
to its shareholders. 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. The Trust believes it has been organized and has operated in a manner that will allow it to
qualify for taxation as a REIT under the Code commencing with the taxable year ending December 31,
2005, and it is managements intention to adhere to these requirements and maintain REIT status. 6




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The Trust has elected to treat Allen & OHara Education Services, Inc. as a taxable REIT
subsidiary (TRS), which manages the Trusts non-REIT activities. Allen & OHara Education
Services, Inc., as a TRS, is subject to federal, state and local income taxes. 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. At March 31, 2005 the following potentially
dilutive securities were outstanding, but were not included in the computation of diluted earnings
per share because the effects of their inclusion would be anti-dilutive: Operating Partnership units
    
    
    1,376University Towers Operating Partnership units
    
    
    270Restricted Stock
    
    
    184Profits Interest Units
    
    
    240Total potentially dilutive securities
    
    
    2,070
 Recent accounting pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R, Share
Based Payment, which requires all companies to measure and recognize the fair value of equity
instrument awards granted to employees. This statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment transactions.
SFAS No. 123R is effective for periods beginning the first
fiscal year after June 15, 2005. The Trust has not completed
the process of evaluating the impact that will result from adopting this statement. The Trust is
therefore unable to disclose the impact that adopting SFAS No. 123R will have on its results of
operations or financial position when such statement is adopted. 4. Investments in unconsolidated entities As of March 31, 2005 and 2004, the Trust and the EDR Predecessor, respectively, had
investments, directly or indirectly, in the following unconsolidated joint ventures and limited
liability companies that are accounted for under the equity method:  
    Salisbury Student Apartment Developers Joint Venture, 33% owned by Allen & OHara
Education Services, LLC (AOES)
    Salisbury Student Apartment Developers LLC, a Maryland limited liability company,
33% owned by the Promoter
    University of Louisville Apartment Developers LLC, a Kentucky limited liability
company, 50% owned by the Promoter
    Hines/AOES LLC, an Alabama limited liability company, 50% owned by AOES
    National Development/Allen & OHara CUPA, LLC, a Pennsylvania limited liability
company, 50% owned by Allen & OHara Development Company, LLC (AODC) 7




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##### Table of Contents




    National Development/Allen & OHara Lock Haven, LLC, a Pennsylvania limited
liability company, 50% owned by AODC
    National Development/Allen & OHara Clarion, LLC, a Pennsylvania limited liability
company, 50% owned by AODC
    Allen & OHara National Development Bloomsburg LLC, a Pennsylvania limited liability
company, 50% owned by AODC
    Allen & OHara / Academic Privatization LLC, a Tennessee limited liability company,
50% owned by AODC These entities primarily provide development consulting services to third party student
housing owners in an agency capacity. The following is a summary of financial information for the
unconsolidated joint ventures and limited liability companies for the three months ended March 31,
2005 and 2004: Three Months Ended March 31,2005
    
    
    2004Results of Operations:Revenues
    
    $
    180
    
    
    $
    942Net income
    
    
    178
    
    
    
    914Equity in earnings of unconsolidated entities
    
    $
    98
    
    
    $
    422
 5. Notes payable and credit facility At December 31, 2004, the Operating Partnership had a Business Loan Agreement (the
Agreement) with a financial institution with an outstanding balance of $497. All outstanding
amounts under the Agreement were paid off on January 31, 2005 with proceeds of the Offering. The Operating Partnership also had an existing agreement with a financial institution to
provide letters of credit in connection with the series of Formation Transactions. This agreement
was secured by personal assets and a personal guarantee of the sole stockholder of the Trust. At
December 31, 2004, there were three outstanding letters of credit under this arrangement totaling
$1,000 in connection with the proposed purchase of the JPI. The letters of credit were cancelled
upon the closing of the JPI portfolio acquisition on January 31, 2005. As of March 31, 2005 there
are no letters of credit outstanding. The EDR Predecessor had a demand note payable to the Promoter that allowed it to borrow up to
$600. The note had an outstanding balance of $485 at December 31, 2004, and was paid in full on
January 31, 2005 as part of the Formation Transactions. Our Operating Partnership obtained a revolving credit facility on January 31, 2005 from
JPMorgan Chase Bank, N.A. and UBS Loan Finance LLC as co-lead managers. Those entities are
affiliates of J.P. Morgan Securities Inc. and UBS Securities LLC, which were underwriters of the
Offering. The revolving credit facility originally had availability in the amount of $75 million
and was subsequently increased to $100 million on April 4, 2005. The Trust will serve as the
guarantor for any funds borrowed by the Operating Partnership under the credit facility. The
revolving credit facility is initially secured by cross-collateralized mortgages on the Trusts
student housing properties. The facility has a term of three years and matures on January 31,
2008, provided that the Operating Partnership may extend the maturity date for one year subject to
certain conditions. Availability under our revolving credit facility is limited to a borrowing base availability
equal to the lesser of (i) 65% of the property asset value (as defined in the credit agreement) of
the properties securing the facility and (ii) the lesser of the loan amount that would produce a
debt service coverage ratio of 1.30 under two different sets of conditions specified in the credit
agreement. Mandatory prepayments 8




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##### Table of Contents



will be required to the extent that outstanding borrowings under the credit facility exceed
the borrowing base amount. Our revolving credit facility contains customary affirmative and negative covenants and does
contain financial covenants that, among other things, require us and our 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 first test date for these EBITDA covenants will be the earlier of the quarter ending
March 31, 2006 and the date upon which outstanding borrowings under the revolving credit facility
exceed $25 million. As of March 31, 2005, we did not have outstanding borrowings under the
revolving credit facility. Additionally, after December 31, 2005, we will be prohibited from
making distributions that exceed 95% of our funds from operations over the previous four
consecutive fiscal quarters, except to the extent necessary to maintain our status as a REIT. The
financial covenants will also include consolidated net worth and leverage ratio tests. The interest rates per annum applicable to loans under the revolving credit facility are, at
our option, equal to either a base rate or one-, two-, or three-month LIBOR plus an applicable
margin based upon our leverage. We expect the alternate base rate to be the greater of (i) the JP
Morgan Chase Bank prime rate or (ii) 50 basis points over the federal funds rate most recently
determined by JP Morgan Chase Bank. 6. Mortgage debt In conjunction with the Formation Transactions, the
Operating Partnership assumed total fixed rate mortgage debt of $392,998 with an average interest
rate of approximately 5.5%. Concurrent with the closing of the Formation Transactions, the
Operating Partnership paid off $115,221 of the assumed debt. In
connection with managements
decision to prepay certain debt obligations, the Trust recognized a charge of $1,084 in the
accompanying consolidated statement of operations for the period January 31 to March 31, 2005. In March 2005, the Operating Partnership assumed an additional $11,200 of mortgage debt with a
fixed interest rate of 4.92% in connection with the acquisition of a student housing property
located at the University of South Carolina. At March 31, 2005 the Trust has outstanding mortgage indebtedness of $288,908 (net of unamortized
debt premium of $96.). The scheduled maturities of all outstanding mortgage indebtedness at March
31, 2005 is as follows: Fiscal Year Ending2005 (nine months ended December 31,)
    
    $
    6852006
    
    
    2,4732007
    
    
    60,7452008
    
    
    27,0582009
    
    
    183,181Thereafter
    
    
    14,670Total
    
    
    288,812Unamortized debt premium
    
    
    96Outstanding at March 31, 2005, net of unamortized premium
    
    $
    288,908
 At March 31, 2005, the outstanding debt had a weighted average interest rate of 5.5% and
carried an average term to maturity of 4.0 years. 9




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##### Table of Contents



7. Segments Business segments are defined by their distinct customer base and service provided. Three
reportable segments have been identified: student housing leasing, student housing
development-consulting services and student housing management services. Management evaluates each
segments performance based on net operating income, which is defined as income before
depreciation, amortization, interest expense and equity in earnings of unconsolidated entities.
Intercompany fees are reflected at the contractually stipulated amounts. The accounting policies
of the reportable segments are the same as those described in the summary of significant accounting
policies. The following table represents segment information for the three months ended March 31,
2005 and 2004: Three
Months Ended March 31, 2005(1)
    
    
    Three Months Ended March 31, 2004Third-Party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Third-PartyStudent
    
    
    Development
    
    
    Third-Party
    
    
    
    
    
    
    
    
    
    
    
    Student
    
    
    Development
    
    
    Third-PartyHousing
    
    
    Consulting
    
    
    Management
    
    
    
    
    
    
    
    
    
    
    
    Housing
    
    
    Consulting
    
    
    Management(in thousands)
    
    Leasing
    
    
    Services
    
    
    Services
    
    
    
    Adjustments
    
    
    Total
    
    
    Leasing
    
    
    Services
    
    
    Services
    
    
    
    Adjustments
    
    
    TotalRevenues:Student housing leasing revenue
    
    $
    14,448
    
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    14,448
    
    
    $
    5,721
    
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    5,721Third-party development consulting services
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    
    368Third-party management revenue
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    
    
    
    
    336
    
    
    
    
    
    
    
    
    336Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    (260
    )
    
    
    Operating expense reimbursements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,357
    
    
    
    1,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,267
    
    
    
    1,267Total revenues
    
    
    14,448
    
    
    
    9
    
    
    
    392
    
    
    
    
    1,357
    
    
    
    16,206
    
    
    
    5,721
    
    
    
    368
    
    
    
    596
    
    
    
    
    1,007
    
    
    
    7,692Operating expenses:Student housing leasing operations
    
    
    6,609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,609
    
    
    
    2,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,504General and administrative
    
    
    
    
    
    
    247
    
    
    
    176
    
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    262
    
    
    
    486
    
    
    
    
    
    
    
    
    748Intersegment expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    
    (260
    )
    
    
    Reimbursable operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,357
    
    
    
    1,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,267
    
    
    
    1,267Total operating expenses
    
    
    6,609
    
    
    
    247
    
    
    
    176
    
    
    
    
    1,357
    
    
    
    8,389
    
    
    
    2,764
    
    
    
    262
    
    
    
    486
    
    
    
    
    1,007
    
    
    
    4,519Net operating income (loss)
    
    
    7,839
    
    
    
    (238
    )
    
    
    216
    
    
    
    
    
    
    
    
    7,817
    
    
    
    2,957
    
    
    
    106
    
    
    
    110
    
    
    
    
    
    
    
    
    3,173Non-operating expenses(2)
    
    
    10,149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,149
    
    
    
    2,218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,218Income (loss) before equity in earnings of unconsolidated entities, income taxes
and minority interest
    
    
    (2,310
    )
    
    
    (238
    )
    
    
    216
    
    
    
    
    
    
    
    
    (2,332
    )
    
    
    739
    
    
    
    106
    
    
    
    110
    
    
    
    
    
    
    
    
    955Equity in earnings of unconsolidated entities
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    422
    
    
    
    
    
    
    
    
    
    
    
    
    422Income (loss) before taxes and minority interest(4)
    
    $
    (2,310
    )
    
    $
    (140
    )
    
    $
    216
    
    
    
    $
    
    
    
    $
    (2,234
    )
    
    $
    739
    
    
    $
    528
    
    
    $
    110
    
    
    
    $
    
    
    
    $
    1,377Total
segment assets(3)
    
    $
    571,284
    
    
    $
    1,224
    
    
    $
    3,802
    
    
    
    $
    
    
    
    $
    576,310
    
    
    $
    88,489
    
    
    $
    1,237
    
    
    $
    422
    
    
    
    $
    
    
    
    $
    90,148
 10




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##### Table of Contents







---

|(1) |  | The segment information presented for the
three months ended March 31, 2005 represents the combined results
of operations for Education Realty Trust, Inc. (post Offering) and
the EDR Predecessor (pre Offering).                                                                     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Non-operating expenses include interest expense, interest income, exit fees on
early payment of debt, amortization of deferred financing costs, depreciation, and
amortization of intangibles.                                                                                         
|   
|(3) |  | Significant changes in segment assets from that presented at March 31, 2004 for
the EDR Predecessor include acquisitions of real estate assets in connection with the
Formation Transactions and real estate acquisitions subsequent to the
Offering as described in Note 2 and Note 9.
|   
|(4) |  | The following is a reconciliation of the
reportable segments net income (loss) before taxes and minority
interest to the Trusts consolidated net income (loss) before
taxes and minority interest:                                                                                   

Net
income (loss) before taxes and minority interest for reportable
segments
    
    $
    (2,234
    )Unallocated
corporate amounts:Noncash
compensation charge for PIUs and restricted stock
    
    
    (4,155
    )Other
corporate expenses
    
    
    (406
    )Net
income (loss) before taxes and minority interest
    
    $
    (6,795
    ) 8. Commitments and contingencies In connection with the acquisition of the JPI portfolio discussed in Note 2, the Operating
Partnership entered into an agreement to provide to the seller a revolving loan commitment secured
by a pledge of the Operating Partnership units issued to the seller in the purchase transaction.
Any borrowings under the revolving loan commitment must be repaid in full on or before the later of
(i) 30 days after the registration of the shares issuable to the seller upon conversion of the
Operating Partnership units issued to the seller or (ii) 14 months after the closing of the
purchase of the JPI Portfolio. The Operating Partnership advanced $5,996 to the seller on January
31, 2005 and the balance remains outstanding as of March 31, 2005. In
March 2005, the Trust entered a binding agreement to purchase a student housing community in
Gainesville, Florida for $44.9 million, including assumption of existing debt of $38.6 million.
The debt carries an interest rate of 6.97%. The Trust also has various operating lease commitments for corporate office space, furniture
and office and technology equipment. 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. 9. Acquisition of real estate investments As discussed in Note 2, in connection with the Offering and Formation Transactions, the
Operating Partnership acquired the entities comprising the EDR Predecessor as well as the 14
properties that comprise the JPI portfolio. Previous to the acquisition of the EDR Predecessor,
the Promoter, directly and indirectly, held ownership interests in the predecessor entities. To
the extent the Promoter exchanged his ownership interests, the acquisition was accounted for at
historical cost. To the extent other ownership interests were exchanged, the acquisition has been
recorded at the estimated fair value of the consideration exchanged. The following is a summary of
the estimated fair values of the assets acquired and liabilities
assumed in connection with the Formation Transactions as of the date of
acquisition: EDR Predecessor
    
    
    JPI PortfolioCurrent assets
    
    $
    5,645
    
    
    $
    3,139Student housing properties
    
    
    117,711
    
    
    
    402,325Goodwill and other intangibles
    
    
    4,127
    
    
    
    3,564Carryover basis at historical cost
    
    
    17,382Other
    
    
    213
    
    
    
    719
 11




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##### Table of Contents



EDR Predecessor
    
    
    JPI PortfolioTotal assets acquired
    
    
    145,078
    
    
    
    409.747Current liabilities
    
    
    (5,917
    )
    
    
    (3,768
    )Mortgage debt assumed
    
    
    (83,099
    )
    
    
    (310,448
    )Acquisition costs
    
    
    (1,561
    )
    
    
    (7,415
    )Purchase price
    
    $
    54,501
    
    
    $
    88,116
 Subsequent to the Offering, the Operating Partnership has acquired student housing properties
at the University of Mississippi (February 2005) and at the University
of South Carolina (March
2005). The aggregate purchase price approximated $37.9 million, including the assumption of $11.2
million of mortgage debt. A summary follows of the estimated fair values of the assets acquired
and the liabilities assumed as of the respective dates of the acquisitions: Preliminary allocation -student housing acquisitionsCurrent assets
    
    $
    141Student housing properties
    
    
    37,054Goodwill and other intangibles
    
    
    346Other
    
    
    56Total assets acquired
    
    
    37,597Current liabilities
    
    
    (370
    )Mortgage debt assumed
    
    
    (10,750
    )Acquisition costs
    
    
    (162
    )Purchase price
    
    $
    26,315
 The purchase price allocations above are
considered preliminary and changes are
expected as additional information becomes available. The results of operations for each acquisition have been included in our statements of
operations from the respective acquisition dates. In connection with the acquisitions discussed
above, $2,972 and $4,695 was allocated to goodwill and other
identifiable intangibles (in-place leases and management contracts),
respectively. In accordance with
SFAS No. 142, goodwill is not subject to
amortization and, therefore, the carrying value remains $2,972 at March 31, 2005. In-place lease
intangibles and management contracts are amortized over the estimated life of the remaining
lease/contract term. Amortization expense totaled $1,586 for the
period January 31, 2005 through
March 31, 2005. Amortization expense for the remainder of fiscal year 2005 is estimated to be
$2,963. Amortization expense for each of the five years following fiscal 2005 is estimated to be
$34 annually. The following pro forma financial information for the three months ending March 31, 2005 and
2004 gives effect to the acquisitions as if the transactions had occurred at the beginning of the
respective period: 12




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##### Table of Contents



Three Months Ended March 31,2005
    
    
    2004Pro forma revenue
    
    $
    22,652
    
    
    $
    21,547Pro forma net loss
    
    
    (6,317
    )
    
    
    (166
    )Earnings (loss) per share
    
    $
    (0.29
    )
 All pro forma financial information presented in this footnote is unaudited and is not
necessarily indicative of the results that actually would have occurred if the properties were
purchased at the beginning of the respective reporting period. 10. 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 units, stock appreciation rights, other stock-based incentive awards, and profits interest
units to employees, directors and other key persons providing services to the Company. The Trust
has reserved 800,000 shares of its common stock 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. Since the completion of the
Offering, the Trust has issued 180,000 shares of restricted stock
under the Plan, to certain executive officers, which will vest ratably over five years. The Trust
also issued 4,000 shares of restricted stock to its directors, which will vest ratably over six
months. 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 March 31, 2005, unearned compensation totals $2.8 million and
is recorded as a reduction of stockholders
equity in the accompanying consolidated balance sheet. The Trust recognizes the value of these
awards as an 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 the period since the completion
of the Offering, compensation expense of $.1 million was recognized in the accompanying consolidated
statement of operations, related to the vesting of restricted stock. Additionally, simultaneous with
the completion of the Offering, the Trust granted 220,000
profits interest units that vested immediately and resulted in a
compensation charge (reflected in
general and administrative expense) of $4.0 million in the accompanying consolidated statement of
operations. Profits interest units, or PIUs, are units in a limited liability company controlled
by the Trust that holds a special class of partnership interests in the Operating Partnership.
Each PIU will be 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 expected 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 13




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##### Table of Contents



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, vested 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 vested 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.
Therefore, a recipient who wishes to hold incentive equity awards for the long term may be able to
do so more efficiently with PIUs and ultimately enjoy a greater after-tax return when disposing of
them. Conversely, we will not receive any tax deduction for compensation expense from the grant of
PIUs. PIUs are treated as minority interests in the accompanying consolidated financial statements
at an amount equal to the holders ownership percentage of the net equity of the Operating
Partnership. 11. Subsequent events On April 12, 2005 the Trust declared its first quarterly dividend of $0.19 per share of common
stock for the partial quarter beginning on January 31, 2005 (the date that the Trust closed the
Offering) and ending on March 31, 2005. The dividend is payable on May 16, 2005 to stockholders of
record at the close of business on April 18, 2005. In April 2005 the Operating Partnership completed the acquisition of a 864-bed University
Courtyard property at Middle Tennessee State University in Murfreesboro, Tennessee for
approximately $20.9 million in cash. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Quarterly Report. 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, 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 the Business  Risk
Factors section of our Annual Report onForm 10-Kfor the year ended December 31, 2004. 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. We were formed to continue and expand upon the student housing business of Allen & OHara,
Inc. and its affiliates (the Predecessor), which commenced in 1964. We commenced operations upon
the completion of our initial public offering and formation transactions, which occurred on January
31, 2005 (the Closing Date). Substantially all of our assets are held by, and we conduct
substantially all of our activities through, Education Realty Operating Partnership, LP, (our
Operating Partnership), Allen & OHara Education Services, Inc., (our Management Company) and
Allen & OHara
Development Company, LLC, (our Development Company), each of which are direct or indirect
subsidiaries of us. 14




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##### Table of Contents



The historical operations prior to the Closing Date that are described in this report refer to
the operations of the Predecessor. We have described our operations in this report as if the
historical operations of the Predecessor were conducted by us. As a result, our results of
operations for the three months ended March 31, 2005 are not comparable to our results of
operations for the three months ended March 31, 2004. Where appropriate, the following discussion
includes an analysis of the completion of our initial public offering and certain matters that have
occurred following the completion of our initial public offering. 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 others.
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 Management Company and Development Company,
respectively. While we manage the properties we own, we will not recognize any fee income from
their management on a consolidated basis. We will elect to be taxed as a REIT for federal income
tax purposes commencing with our tax year ending December 31, 2005. Our Business Segments We define business segments by their distinct customer base and service provided. Management
has identified three reportable segments: student housing leasing, third party development
consulting services and third-party management services. We evaluate each segments performance
based on net operating income, which is defined as income before depreciation, amortization,
interest expense and equity in earnings of unconsolidated entities. The accounting policies of the
reportable segments are described in more detail in the summary of significant accounting policies
in the footnotes to the combined financial statements appearing elsewhere in this Quarterly Report.
Inter-company fees are reflected at the contractually stipulated amounts. Student Housing Leasing Student housing leasing revenue represented approximately 97.3% of our revenue, excluding
operating expense reimbursements, for the three months ended March 31, 2005. We include in student
housing leasing revenue our revenue from food service operations at University Towers, as well as
revenue from a contract pursuant to which we provide food services at the Robert Louis Stevenson
School in Pebble Beach, California. 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. A parent or guardian is required to execute each lease as a guarantor unless the
resident provides adequate proof of income. The number of lease contracts that we administer is
therefore equivalent to the number of beds occupied instead of the number of apartment units. Due to our predominantly private bedroom accommodations, the high level of student-oriented
amenities offered at our communities and 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 15




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##### Table of Contents



the same geographic markets. We are also typically able to command higher rental
rates than on-campus student housing, which tend to offer properties with fewer amenities. Substantially all of our leases commence mid-August and terminate the last day of July. These
dates coincide with the commencement of the universities fall academic term and typically
terminate at 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 2003 and 2004, approximately 72.6% and 64.7%, respectively, of
our beds were leased 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 February and ends in August of each year. Our properties
occupancy rates are therefore relatively stable during the August to July academic year but are
susceptible to fluctuation at the commencement of each new academic year, which may be greater than
the fluctuation in occupancy rates upon expiration of traditional apartment leases. During the first two weeks of August, prior to the commencement of each new lease period, we
prepare the units for the new incoming tenants. Other than revenue generated by in-place leases
for returning tenants, we do not generally recognize lease revenue during this period, as we have
no leases in place. In addition, during this turnover period we incur significant expenses, which
we immediately recognize, making our units ready for occupancy on or about August 15.
Consequently, our August lease turnover results in seasonality in our operating results during the
third quarter of each year. Third-Party Management Services Revenue from our third-party management services, excluding operating expense reimbursements,
represented approximately 2.6% of our revenue for the three months ended March 31, 2005. 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 third-party
properties owners. These costs are included in reimbursable operating expenses and are required
to be reimbursed to us by the third-party 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 our management when analyzing the operating performance of our
third-party management services business. Third-Party Development Consulting Services Revenue from our third-party development consulting services, excluding operating expense
reimbursements, represented less than 1% of our revenue for the three months ended March 31, 2005.
Fees for these services are typically 3-5% of the total project cost and are payable over the life
of the project, which is typically one to two years in length. At times we will pay
pre-development expenses such as architectural fees and permits if such are required prior to the
projects financing being in place. These expenses are included in reimbursable operating
expenses, and we typically obtain a guarantee from the owner for repayment. 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. 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 16




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##### Table of Contents



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 third-party development projects have completed construction in time for their targeted
occupancy dates. Trends and Outlook Rents and Occupancy We expect the general trends of increased university enrollment and limited availability of
on-campus housing to continue for the foreseeable future, providing us with continued opportunities
to maximize revenues through increased occupancy and/or rental rates in our owned portfolio. 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 an
overall increase in revenues from the property. As a result, a decrease in occupancy rates may not
be material to our operations and may be offset by an increase in rental rates. For the three
months ended March 31, 2005 and 2004, we experienced a general trend of increasing revenue per
available bed for our garden style apartment communities. University Towers, a traditional
dormitory style property, experienced a lower revenue per available bed for the comparable period
as a result of decreased occupancy due to increased competition from new on and off campus freshman
housing at North Carolina State University. We anticipate this competitive pressure to stabilize
after the 2005-2006 school year. Integration Costs Related to the Acquisition of Additional Properties Our acquisition of 14 properties previously owned by JPI Investment Company, L.P. and its
affiliates (JPI) on the Closing Date and our acquisition of an additional three properties since
the Closing Date, two of which were acquired during the period ending
March 31, 2005 and one of which was acquired in April
2005, have resulted in a substantial increase in the number of student housing communities that our
Management Company and management team has historically owned and/or managed. The acquisitions of
these and other acquired properties will require us to enhance our management information systems
and add additional regional management and corresponding support personnel in our corporate office. General and Administrative Costs As a result of becoming a public company in January 2005, we will experience significant
increases in legal and accounting costs, director fees, costs related to communicating with
stockholders, including ongoing communications and distribution of proxy statements in connection
with stockholder meetings, and other costs that are unique to being a public company. We expect
that our general and administrative expenses will increase as a result of costs associated with
being a public company, including costs associated with formulating and documenting our internal
control system. 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 17




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##### Table of Contents



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 combined
financial statements, giving due consideration to materiality. It is possible that 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 activities related to the leasing
activities at the student housing properties and includes revenues from the leasing of space,
parking lot rentals and certain ancillary services. Students are required to execute lease contracts with payment schedules that vary from single
to monthly payments. Generally, each executed contract must be accompanied by a nonrefundable
application fee, a nonrefundable service fee and a notarized parental guarantee. Receivables are
recorded when due, and 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. Revenue and Cost Recognition of Third-Party 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. 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. 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 from financial reporting purposes. Since, as a REIT, we will be required to distribute
90% of our 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 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. Student Housing Property Acquisitions Land, buildings and improvements, furniture, fixtures and equipment are recorded at cost.
Buildings and improvements are depreciated over 30 years, and furniture, fixtures and equipment are 18




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##### Table of Contents



depreciated over estimated lives ranging from three to five years using the straight-line method.
Property acquisitions initiated subsequent to June 30, 2001 are accounted for utilizing the
purchase method in accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations.Pre-acquisition costs, including legal and professional fees and other
third-party costs related directly to the acquisition of the property, are accounted for as part of
the purchase price. We have used independent appraisals obtained at the time of the original
acquisition of each property by the owners of the properties we are acquiring in our formation
transactions, estimates of cash flows and valuation techniques to allocate the purchase price of
acquired property between land, buildings and improvements, equipment and other identifiable
intangibles such as amounts related to in-place leases, acquired above and below-market leases and
tenant relationships. 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. Long Lived Assets  Impairment Management reviews long lived assets 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. Results of Operations The following table presents the combined results of operations for Education Realty Trust,
Inc. (post Offering) and the EDR Predecessor (pre Offering) for the three months ended March 31,
2005 and the results of operations for the EDR Predecessor for the three months ended March 31,
2004: Three Months Ended March 31, 2005
    
    
    Three Months Ended March 31, 2004Third-Party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Third-PartyStudent
    
    
    Development
    
    
    Third-Party
    
    
    
    
    
    
    
    
    
    
    Student
    
    
    Development
    
    
    Third-PartyHousing
    
    
    Consulting
    
    
    Management
    
    
    
    
    
    
    
    
    
    
    Housing
    
    
    Consulting
    
    
    Management(in thousands)
    
    Leasing
    
    
    Services
    
    
    Services
    
    
    Adjustments
    
    
    Total
    
    
    Leasing
    
    
    Services
    
    
    Services
    
    
    Adjustments
    
    
    TotalRevenues:Student housing leasing revenue
    
    $
    14,448
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    14,448
    
    
    $
    5,721
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    5,721Third-party development consulting services
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    368Third-party management revenue
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    
    
    
    
    336
    
    
    
    
    
    
    
    336Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    (260
    )
    
    
    Operating expense reimbursements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,357
    
    
    
    1,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,267
    
    
    
    1,267Total revenues
    
    
    14,448
    
    
    
    9
    
    
    
    392
    
    
    
    1,357
    
    
    
    16,206
    
    
    
    5,721
    
    
    
    368
    
    
    
    596
    
    
    
    1,007
    
    
    
    7,692Operating expenses:Student housing leasing operations
    
    
    6,609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,609
    
    
    
    2,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,504General and administrative
    
    
    
    
    
    
    247
    
    
    
    176
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    262
    
    
    
    486
    
    
    
    
    
    
    
    748Intersegment expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    (260
    )
    
    
    Reimbursable operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,357
    
    
    
    1,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,267
    
    
    
    1,267Total operating expenses
    
    
    6,609
    
    
    
    247
    
    
    
    176
    
    
    
    1,357
    
    
    
    8,389
    
    
    
    2,764
    
    
    
    262
    
    
    
    486
    
    
    
    1,007
    
    
    
    4,519Net operating income (loss)
    
    
    7,839
    
    
    
    (238
    )
    
    
    216
    
    
    
    
    
    
    
    7,817
    
    
    
    2,957
    
    
    
    106
    
    
    
    110
    
    
    
    
    
    
    
    3,173Non-operating expenses:Depreciation and amortization
    
    
    5,962
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,962
    
    
    
    773
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    773Amortization of deferred financing fees
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Exit fees on early payment of debt
    
    
    1,084
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,084
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    3,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,056
    
    
    
    1,404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,404Total non-operating expenses
    
    
    10,149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,149
    
    
    
    2,218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,218Income (loss) before equity in earnings of
unconsolidated entities, income taxes and
minority interest
    
    
    (2,310
    )
    
    
    (238
    )
    
    
    216
    
    
    
    
    
    
    
    (2,332
    )
    
    
    739
    
    
    
    106
    
    
    
    110
    
    
    
    
    
    
    
    955Equity in earnings of unconsolidated entities
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    422
    
    
    
    
    
    
    
    
    
    
    
    422Income (loss) before taxes and minority interest
    
    
    (2,310
    )
    
    
    (140
    )
    
    
    216
    
    
    
    
    
    
    
    2,234
    
    
    
    739
    
    
    
    528
    
    
    
    110
    
    
    
    
    
    
    
    1,377
 19




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##### Table of Contents



Student housing leasing We owned 23 properties containing 16,945 beds during the three months ended March 31, 2005,
including 636 beds at Campus Creek Apartments, near the University of Mississippi, and 480 beds at
Sterling University Riverside, near the University of South Carolina, each of which we acquired
during the period ending March 31, 2005. We owned seven properties containing 3,896 beds during the three months ended March
31, 2004. Revenue from student housing leasing increased by $8.7 million, or 152.5%, to $14.4
million for the three months ended March 31, 2005 from $5.7 million for the three months ended
March 31, 2004. This increase was due largely to the acquisition of the 14 JPI properties upon
consummation of our IPO and the incremental impact relating to the two new property acquisitions as
described above. These items were partially offset by a decrease in revenue due to the lower current quarter occupancy at
our University Towers property as the result of increased competition from new on and off campus
housing at North Carolina State University. Overall average physical occupancy and Revenue per
Available Bed (RevPAB) for the three-month periods ended March 31, 2005 and March 31, 2004 were as
follows: 20




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##### Table of Contents



Occupancy as of
    
    
    RevPAB as of
    
    
    Occupancy as of
    
    
    RevPAB as ofMarch 31, 2005
    
    
    March 31, 2005
    
    
    March 31, 2004
    
    
    March 31, 2004EDR Predecessor
    
    
    93.6
    %
    
    $
    327
    
    

    
    93.9
    %
    
    $
    309University Towers
    
    
    83.0
    %
    
    $
    649
    
    
    
    96.4
    %
    
    $
    759Total EDR Predecessor
    
    
    91.0
    %
    
    $
    405
    
    
    
    94.5
    %
    
    $
    419JPI Portfolio (1)
    
    
    93.2
    %
    
    $
    347
    
    
    
    
    
    
    
    New Acquisitions (1)
    
    
    91.9
    %
    
    $
    369
    
    
    
    
    
    
    
    Total EDR Owned
    
    
    92.6
    %
    
    
    
    
    
    
    94.5
    %
    
    $
    419
   (1)
    
    Properties were not owned as of March 31, 2004. Operating expenses of our student housing communities increased by $4.1 million, or 163.9%, to
$6.6 million for the three months ended March 31, 2005 from $2.5 million for the three months ended
March 31, 2004. This increase was also due to the addition of the 14 JPI properties acquired upon
our IPO closing and the incremental impact relating to the two new properties as described in the
preceding paragraph. Third-party development consulting services Third-party development services revenues decreased by $359,000, or 97.6%, to $9,000 for the
three months ended March 31, 2005 from $368,000 for the three months ended March 31, 2004. This
decrease was primarily due to the recognition of a one-time consulting fee associated with the
University of California  Berkeley student housing project in January 2004. The majority of third-party development consulting services for the three months ended March
31, 2005 and 2004 were conducted through joint venture arrangements, and related fees were
recognized as equity in earnings of unconsolidated entities. Equity in earnings of unconsolidated
entities decreased by $0.3 million, or 76.8%, to $0.1 million for the three months ended March 31,
2005 from $0.4 million for the three months ended March 31, 2004. This decrease was primarily due
to fewer development projects under construction during the first quarter of 2005 (two projects
with beds totaling 1,160) versus the same period in 2004 (four student housing projects with beds
totaling 2,076). Third-party management services Third-party management services revenues increased by $0.1 million, or 16.7%, to $0.4 million
for the three months ended March 31, 2005 from $0.3 million for the three months ended March 31,
2004. This increase was primarily the result of the opening of four new managed properties
consisting of 2,096 beds in Fall 2004 General and administrative General and administrative costs increased by $4.2 million, or 473.3%, to $5.1 million for the
three months ended March 31, 2005 from $0.9 million for the three months ended March 31, 2004,
primarily due to non-recurring incentive compensation expenses of $4.0 million relating to the
grant of 240,000 vested profits interest units, the additional cost of operating as a public company
and the result of additional corporate staff needed to accommodate the growth in our management
services business. 21




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##### Table of Contents



Liquidity and Capital Resources Revolving Credit Facility On the Closing Date, our Operating Partnership obtained a revolving credit facility from
JPMorgan Chase Bank, N.A. and UBS Loan Finance LLC as co-lead managers. The revolving credit
facility was originally in the amount of $75 million and was increased to $100 million on April 4,
2005. We will serve as the guarantor for any funds borrowed by our Operating Partnership under the
credit facility. We expect that the revolving credit facility will be available to, among other
things, fund future property acquisitions, distributions to our stockholders or working capital
needs. The revolving credit facility is initially secured by cross-collateralized mortgages on our
student housing properties. The revolving credit facility has a term of three years and matures on
January 31, 2008, provided that our Operating Partnership may extend the maturity date for one year
subject to certain conditions. All borrowings under the revolving credit facility will be subject
to the satisfaction of customary conditions, including the absence of a default and accuracy of
representations and warranties. Availability under our revolving credit facility is limited to a borrowing base availability
equal to the lesser of (i) 65% of the property asset value (as defined in the credit agreement) of
the properties securing the facility and (ii) the lesser of the loan amount that would produce a
debt service coverage ratio of 1.30 under two different sets of conditions specified in the credit
agreement. Mandatory prepayments will be required to the extent that outstanding borrowings under
the credit facility exceed the borrowing base amount. Our revolving credit facility contains customary affirmative and negative covenants
and also contains financial covenants that, among other things, require us and our 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 first test date for these EBITDA covenants will be the earlier of the quarter ending
March 31, 2006 and the date upon which outstanding borrowings under the revolving credit facility
exceed $25 million. As of March 31, 2005, we did not have outstanding borrowings under the
revolving credit facility. Additionally, after December 31, 2005, we will be prohibited from
making distributions that exceed 95% of our funds from operations over the previous four
consecutive fiscal quarters, except to the extent necessary to maintain our status as a REIT. The
financial covenants also include consolidated net worth and leverage ratio tests. The interest rates
per annum applicable to loans under the revolving credit facility are, at
our option, equal to either a base rate or one-, two-, or three-month LIBOR plus an applicable
margin based upon our leverage. We expect the alternate base rate to be the greater of (i) the JP
Morgan Chase Bank prime rate or (ii) 50 basis points over the federal funds rate most recently
determined by JP Morgan Chase Bank. Liquidity outlook and capital requirements We believe that our initial public offering, $100 million revolving credit facility and the
related formation transactions have improved our capital structure by increasing our equity
capitalization and reducing our leverage. Approximately $115.2 million of the proceeds from our
initial public offering was used to repay debt. In addition to the $100 million availability under
our credit facility, we had approximately $47.6 million of cash available at March 31, 2005, for
use in acquisition of additional student housing communities, repayment of additional indebtedness, payment of distributions to
our stockholders, and other general working capital needs. As of May 15, 2005, we had not borrowed
any funds under our credit facility. 22




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We believe that we have sufficient liquidity and access to financing to make future student
housing investments. There can be no assurance that we will make any investments in any other
properties that meet our investment criteria. Our liquidity needs include funds for distribution payments to our stockholders, including
those required to maintain our REIT status and satisfy our current distribution policy, funds for
capital expenditures, funds for debt repayment and, potentially, funds for new property
acquisitions. We expect to meet our short-term liquidity requirements generally through net cash
provided by operations. We expect our long-term liquidity requirements to be satisfied through
cash generated by operations and external sources of debt and equity capital, including public
capital markets as well as private sources of capital. To the extent that we are unable to
maintain our revolving credit facility 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. We intend to invest in additional properties only as suitable opportunities arise. In the
short term, we intend to fund acquisitions with working capital and borrowings under our revolving
credit facility. We intend to finance property acquisitions over the longer term with the proceeds
from additional issuances of common or preferred stock, debt financing and issuances of units of
our Operating Partnership. We anticipate that our existing working capital and cash from operations will be adequate to
meet our liquidity requirements for at least the next three months. Pre-development 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. We typically obtain from the project owner a guarantee of repayment
of these predevelopment expenditures, but no assurance can be given that we would be successful in
collecting the amount guaranteed in the event that a project financing is not obtained. 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 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. We consider market factors and our performance in
addition to REIT requirements in determining distribution levels. On April 12, 2005, our board of directors declared a distribution of $0.19 per share of common
stock for the partial quarter beginning on January 31, 2005 (the date that we closed on our initial
public offering) and ending on March 31, 2005. The dividend is payable on May 16, 2005 to
stockholders of record at the close of business on April 18, 2005. Because the first quarter was
approximately one-third completed when our initial public offering closed, the dividend is based on
a pro-rata computation of our target quarterly dividend of $0.2975 per share, or $1.19 per share
annually. 23




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Long-Term Indebtedness As of March 31, 2005 we had approximately $288.9 million of mortgage debt outstanding. The
following table summarizes (in thousands) our repayment obligations: Year2005 (nine
months ended December 31)
    
    $
    6852006
    
    
    2,4732007
    
    
    60,7452008
    
    
    27,0582009
    
    
    183,181Thereafter
    
    
    14,670Total
    
    $
    288,812
 As of March 31, 2005 the debt had a weighted average annual interest rate of 5.5% and a
weighted average term to maturity of 4.0 years. As of March 31, 2005, seven of our properties were unencumbered by mortgage debt but have been
pledged as collateral against any borrowing under our $100 million credit facility. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Funds From Operations 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 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. 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. 24




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The following table presents a reconciliation of our FFO to our net income for the three
months ended March 31, 2005 and 2004. Three Months Ended March 31,(in thousands)
    
    2005
    
    
    2004Net income
    
    $
    (6,298
    )
    
    $
    1,229Plus student housing property depreciation and
amortization of lease intangibles
    
    
    5,962
    
    
    
    773Funds from operations
    
    $
    (336
    )
    
    $
    2,002
 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. Recent Developments In April 2005, we acquired a student housing community in Murfreesboro, Tennessee for $20.9
million in an all cash transaction. The property is located approximately one-half mile from
Middle Tennessee State University and is composed of 11 three-story buildings containing 240 fully
furnished units with 864 beds. The property offers amenities including a swimming pool, hot tub,
game room, basketball and tennis courts and fitness center on an approximately 24-acre site. The
property is approximately 90% leased for the current academic year. In March 2005, we entered a binding agreement to purchase a student housing community in
Gainesville, Florida for $44.9 million, including assumption of existing debt of $38.6 million.
The debt carries an interest rate of 6.97%. The property is located approximately two miles from
the University of Florida and has 360 fully furnished units with 1,116 beds. The property offers
amenities including a fitness center, a pool plaza with water volleyball and poolside billiards and
a computer center on an approximately 34-acre site. The property is approximately 90% leased for
the current academic year. 
 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. All of the outstanding principal amounts of our notes payable
on the properties we own after the Offering and Formation Transactions have fixed interest rates
with a weighted average rate of 5.5%. As a result, we do not currently have exposure to interest
rate fluctuations. We anticipate incurring additional variable rate indebtedness in the future,
including draws under our revolving credit facility and/or variable interest rate swaps on existing fixed-rate
indebtedness. We may in the future use derivative financial instruments to manage, or hedge,
interest rate risks related to such variable rate borrowings. 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. Our management evaluated, with the participation of our principal executive officer and
principal financial officer, the effectiveness of our disclosure controls and procedures as of
March 31, 2005. Based on that evaluation, our principal executive officer and principal financial
officer have concluded that our 25




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disclosure controls and procedures were effective as of the end of
the period covered by this Quarterly Report. To these officers knowledge, there were no
significant changes in our internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation. There has been no change in our internal control over financial reporting that has occurred
that materially affects or is reasonably likely to materially affect our internal controls over
financial reporting. 
 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 2. Unregistered Sales of Equity Securities and Use of Proceeds. Our common stock began trading on the New York Stock Exchange under the symbol EDR on
January 26, 2005. On the Closing Date, we sold 21,850,000 shares of our common stock at an initial
public offering price of $16.00 per share, including the sale of 2,850,000 shares in connection
with the full exercise of the over-allotment option by the underwriters of our Offering. The
shares sold in our initial public offering were registered pursuant to a Registration Statement on
Form S-11, as amended, originally filed on September 24, 2004 (File No. 333-119264) and a
Registration Statement on Form S-11 filed on January 26, 2005 (File No. 333-122298). J.P. Morgan
Securities Inc. and UBS Securities LLC were the joint book-running managers for our initial public
offering. Simultaneous with our initial public offering, we completed our formation transactions,
which included the contribution of the student housing business of our Predecessor and its
subsidiaries, purchase of the related minority interests in our Predecessor and its subsidiaries
and the acquisition of 14 student housing communities previously owned by JPI. The net proceeds of
the initial public offering after expenses were approximately $320.4 million. We have used the
proceeds from our initial public offering as follows:  
    approximately $121.2 million to pay the cash portion of our formation transactions;
    approximately $118.4 million to repay mortgage debt assumed in the formation
transactions, including prepayment fees of approximately $3.7 million;
    approximately $6.0 million to fund our revolving loan commitment to an affiliate of
JPI;
    approximately $1.4 million to pay loan origination fees relating to our $100 million
revolving credit facility that was obtained on January 31, 2005 and amended on April 4,
2005;
    approximately $47.0 million to purchase properties located near the University of
Mississippi in February 2005, the University of South Carolina in March 2005 and a
property located near Middle Tennessee State University in April 2005; and
    approximately $26.4 million that remains available for general corporate uses, which
may include the acquisition of additional student housing communities, repayment of
additional indebtedness and payment of distributions to our stockholders. On the Closing Date, 814,914 units of limited partnership interest in our Operating
Partnership, having a value of approximately $13.9 million, and 181,808 units of limited
partnership interest in the University Towers Partnership, having a value of approximately $3.1
million, were issued to a total of four persons, including certain of our directors and officers,
in exchange for interests in our initial 26




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properties and other assets. These units are convertible
after one year from the date of issuance into cash or, at our election, shares of our common stock
on a one-for-one basis. All of such persons irrevocably committed to the transfer of such
interests and assets prior to the filing of the registration statement for our initial public
offering pursuant to certain contribution agreements and merger agreements dated between September
17, 2004 and September 24, 2004 and are accredited investors as defined under Regulation D of the
Securities Act. The issuances of all the units described above were made in reliance upon
exemptions from registration provided by Section 4(2) under the Securities Act and Rule 506 of
Regulation D thereunder. Also on the Closing Date, we issued to JPI a warrant to purchase 250,000 shares of our common
stock at a price equal to 103% of the initial public offering price. Pursuant to a contract of
sale/contribution dated September 17, 2004, JPI irrevocably committed to the transfer of such
interest in exchange for the consideration provided for in the contract, including the warrant.
JPI is an accredited investor as defined under Regulation D of the Securities Act. This warrant
will be exercisable beginning January 31, 2006 and will expire on February 28, 2007 unless
previously exercised. The issuance of the warrant was made in reliance upon an exemption from
registration provided by Section 4(2) under the Securities Act and Rule 506 of Regulation D
thereunder. In addition, also on the Closing Date, we issued 170,000 restricted shares of our common stock
with an aggregate value of $2,890,000, and 220,000 profits interest units representing an aggregate
1.1% interest in our Operating Partnership to our executive officers, pursuant to the terms of
their respective employment agreements and to other employees at the discretion of our board. The
issuance of such shares was made in reliance upon an exemption from registration under Rule 701 and
Section 4(2) of the Securities Act. In addition, each of our independent directors received on the
Closing Date an initial grant of restricted stock representing 1,000 shares of our common stock,
which will vest 180 days following the Closing Date. Subsequent to the Closing Date, we issued an
additional 10,000 shares of restricted stock and 20,000 shares of profits interest units to a
newly-hired officer. The issuance of these restricted stock units was made in reliance upon an
exemption from registration under Rule 701 and Section 4(2) of the Securities Act. 
 Item 3. Defaults Upon Senior Securities. None. 
 Item 4. Submission of Matters to a Vote of Security Holders. None. 
 Item 5. Other Information. None. 
 Item 6. Exhibits. Exhibit 31.1
    
    Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act, as amended.Exhibit 31.2
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.Exhibit 32.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act, as amended.
 27




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*  In accordance with Release No. 34-47986, 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. 28




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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: May 16, 2005
    
    /s/ Paul O. BowerPaul O. BowerPresident, Chief Executive Officerand Chairman of the Board of Directors(Principal Executive Officer)Date: May 16, 2005
    
    /s/ Randall H. BrownRandall H. BrownExecutive Vice President, Chief Financial Officer,Treasurer and Secretary(Principal Financial Officer)Date: May 16, 2005
    
    /s/ J. Drew KoesterJ. Drew KoesterVice President and Chief Accounting Officer
(Principal Accounting Officer)
 29




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EXHIBIT INDEX Exhibit 31.1
    
    Certification of Principal Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act, as amended.Exhibit 31.2
    
    Certification of Principal Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act, as amended.Exhibit 32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a-14(b) of the Securities Exchange
Act, as amended.