UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 
 x Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
 
 For the
quarterly period ended June 30, 2008.
 
 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 001-32265
  AMERICAN
CAMPUS COMMUNITIES, INC.
 (Exact
name of registrant as specified in its charter)
 
 Maryland
              76-0753089(State
      or Other Jurisdiction of
                Incorporation
      or Organization)
              (IRS
      Employer Identification No.)805
      Las Cimas Parkway, Suite 400
                Austin,
      TX
                (Address
      of Principal Executive Offices)
              78746
                (Zip
      Code)
 
 (512)
732-1000
 Registrant’s
telephone number, including area code
    Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x  No o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
 Large accelerated
      filer x
                Accelerated Filer
      o
                Non-accelerated
      filer o
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
 Yes o  No x
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
 
 There
were 42,304,820 shares of American Campus Communities, Inc.'s common stock
with a par value of $0.01 per share outstanding as of the close of business on
July 31, 2008.
  
 FORM
10-Q
 FOR
THE QUARTER ENDED JUNE 30, 2008
 
 TABLE
OF CONTENTS
 
 PAGE
      NO.PART
      I.Item
      1.
                Consolidated
      Financial StatementsConsolidated
      Balance Sheets as of June 30, 2008 (unaudited) and December 31,
      2007
                1Consolidated
      Statements of Operations for the three and six months ended June 30, 2008
      and 2007 (all unaudited)
                2Consolidated
      Statements of Comprehensive Income for the six months ended June 30, 2008
      and 2007 (all unaudited)
                3Consolidated
      Statements of Cash Flows for the six months ended June 30, 2008 and 2007
      (all unaudited)
                4Notes
      to Consolidated Financial Statements
                5Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                21Item
      3.
                Quantitative
      and Qualitative Disclosure about Market Risk
                40Item
      4.
                Controls
      and Procedures
                40PART
      II.Item
      4.
                Submissions
      of Matters to a Vote of Security Holders
                41Item
      6.
                Exhibits
                41SIGNATURES
                42
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 (in
thousands, except share and per share data)
 
 June
      30, 2008
                
                
                December
      31, 2007(Unaudited)AssetsInvestments
      in real estate:Wholly-owned
      properties, net
                
                $
                1,931,316
                
                
                $
                947,062Wholly-owned
      properties-held for sale
                
                
                68,641
                
                
                
                -On-campus
      participating properties, net
                
                
                70,959
                
                
                
                72,905Investments
      in real estate, net
                
                
                2,070,916
                
                
                
                1,019,967Cash
      and cash equivalents
                
                
                63,470
                
                
                
                12,073Restricted
      cash
                
                
                32,196
                
                
                
                13,855Student
      contracts receivable, net
                
                
                3,298
                
                
                
                3,657Other
      assets
                
                
                69,165
                
                
                
                26,744Total
      assets
                
                $
                2,239,045
                
                
                $
                1,076,296Liabilities
      and stockholders’ equityLiabilities:Secured
      debt
                
                $
                1,190,552
                
                
                $
                533,430Secured
      term loan
                
                
                100,000
                
                
                
                -Unsecured
      revolving credit facility
                
                
                -
                
                
                
                9,600Accounts
      payable and accrued expenses
                
                
                35,270
                
                
                
                14,360Other
      liabilities
                
                
                48,739
                
                
                
                43,278Total
      liabilities
                
                
                1,374,561
                
                
                
                600,668Minority
      interests
                
                
                30,021
                
                
                
                31,251Commitments
      and contingencies (Note 14)Stockholders’
      equity:Preferred
      stock
                
                
                131
                
                
                
                -Common
      shares, $.01 par value, 800,000,000 shares
                  authorized,
      42,291,170 and 27,275,491 shares issued
                  and
      outstanding at June 30, 2008 and
                  December
      31, 2007, respectively
                
                
                422
                
                
                
                273Additional
      paid in capital
                
                
                902,273
                
                
                
                494,160Accumulated
      earnings and distributions
                
                
                (66,549
                )
                
                
                (48,181
                )Accumulated
      other comprehensive loss
                
                
                (1,814
                )
                
                
                (1,875
                )Total
      stockholders’ equity
                
                
                834,463
                
                
                
                444,377Total
      liabilities and stockholders’ equity
                
                $
                2,239,045
                
                
                $
                1,076,296
 
   See
accompanying notes to consolidated financial statements.
  1
 
  AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited,
in thousands, except share and per share data)
 
 Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenues:Wholly-owned
      properties
                
                $
                37,294
                
                
                $
                28,007
                
                
                $
                68,975
                
                
                $
                55,152On-campus
      participating properties
                
                
                3,948
                
                
                
                3,740
                
                
                
                10,692
                
                
                
                10,077Third
      party development services
                
                
                687
                
                
                
                609
                
                
                
                2,307
                
                
                
                978Third
      party development services – on-campus
                  participating
      properties
                
                
                36
                
                
                
                37
                
                
                
                72
                
                
                
                73Third
      party management services
                
                
                1,222
                
                
                
                650
                
                
                
                2,144
                
                
                
                1,372Resident
      services
                
                
                361
                
                
                
                323
                
                
                
                799
                
                
                
                664Total
      revenues
                
                
                43,548
                
                
                
                33,366
                
                
                
                84,989
                
                
                
                68,316Operating
      expenses:Wholly-owned
      properties
                
                
                16,738
                
                
                
                13,046
                
                
                
                30,623
                
                
                
                24,908On-campus
      participating properties
                
                
                2,499
                
                
                
                2,499
                
                
                
                4,794
                
                
                
                4,525Third
      party development and management services
                
                
                2,328
                
                
                
                1,147
                
                
                
                4,436
                
                
                
                2,441General
      and administrative
                
                
                3,237
                
                
                
                2,190
                
                
                
                5,371
                
                
                
                13,518Depreciation
      and amortization
                
                
                11,114
                
                
                
                7,768
                
                
                
                19,143
                
                
                
                14,738Ground/facility
      leases
                
                
                368
                
                
                
                495
                
                
                
                727
                
                
                
                790Total
      operating expenses
                
                
                36,284
                
                
                
                27,145
                
                
                
                65,094
                
                
                
                60,920Operating
      income
                
                
                7,264
                
                
                
                6,221
                
                
                
                19,895
                
                
                
                7,396Nonoperating
      income and (expenses):Interest
      income
                
                
                642
                
                
                
                314
                
                
                
                804
                
                
                
                1,021Interest
      expense
                
                
                (8,733
                )
                
                
                (6,920
                )
                
                
                (15,712
                )
                
                
                (13,380
                )Amortization
      of deferred financing costs
                
                
                (448
                )
                
                
                (314
                )
                
                
                (759
                )
                
                
                (612
                )Loss
      from unconsolidated joint ventures
                
                
                (129
                )
                
                
                -
                
                
                
                (255
                )
                
                
                -Total
      nonoperating expenses
                
                
                (8,668
                )
                
                
                (6,920
                )
                
                
                (15,922
                )
                
                
                (12,971
                )(Loss)
      income before income taxes, minority interests,and
      discontinued operations
                
                
                (1,404
                )
                
                
                (699
                )
                
                
                3,973
                
                
                
                (5,575
                )Income
      tax provision
                
                
                (73
                )
                
                
                (60
                )
                
                
                (133
                )
                
                
                (120
                )Minority
      interests
                
                
                (65
                )
                
                
                (26
                )
                
                
                (473
                )
                
                
                232(Loss)
      income from continuing operations
                
                
                (1,542
                )
                
                
                (785
                )
                
                
                3,367
                
                
                
                (5,463
                )Discontinued
      operations:Income
      attributable to discontinued operations
                
                
                92
                
                
                
                -
                
                
                
                92
                
                
                
                -Net
      (loss) income
                
                $
                (1,450
                )
                
                $
                (785
                )
                
                $
                3,459
                
                
                $
                (5,463
                )(Loss)
      income per share – basic:(Loss)
      income from continuing operations per share
                
                $
                (0.04
                )
                
                $
                (0.03
                )
                
                $
                0.11
                
                
                $
                (0.24
                )Net
      (loss) income per share
                
                $
                (0.04
                )
                
                $
                (0.03
                )
                
                $
                0.11
                
                
                $
                (0.24
                )(Loss)
      income per share – diluted:(Loss)
      income from continuing operations per share
                
                $
                (0.04
                )
                
                $
                (0.03
                )
                
                $
                0.11
                
                
                $
                (0.23
                )Net
      (loss) income per share
                
                $
                (0.04
                )
                
                $
                (0.03
                )
                
                $
                0.11
                
                
                $
                (0.23
                )Weighted
      average common shares outstanding:Basic
                
                
                35,692,653
                
                
                
                23,271,223
                
                
                
                31,512,271
                
                
                
                23,107,888Diluted
                
                
                37,098,977
                
                
                
                25,259,335
                
                
                
                33,272,354
                
                
                
                25,250,312Distributions
      declared per common share
                
                $
                0.3375
                
                
                $
                0.3375
                
                
                $
                0.675
                
                
                $
                0.675
    See
accompanying notes to consolidated financial statements.
  2
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
 (Unaudited,
in thousands)
 
 Six Months Ended June
      30,2008
                
                
                2007Net
      income (loss)
                
                $
                3,459
                
                
                $
                (5,463
                )Other
      comprehensive income:Change
      in fair value of interest rate swaps
                
                
                182
                
                
                
                104Net
      comprehensive income (loss)
                
                $
                3,641
                
                
                $
                (5,359
                )
   
 See
accompanying notes to consolidated financial statements.
  3
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited,
in thousands)
  Six
      Months Ended June 30,2008
                
                
                2007Operating
      activitiesNet
      income (loss)
                
                $
                3,459
                
                
                $
                (5,463
                )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Minority
      interests share of income (loss)
                
                
                473
                
                
                
                (232
                )Depreciation
      and amortization
                
                
                19,143
                
                
                
                14,738Amortization
      of deferred financing costs and debt premiums/discounts
                
                
                77
                
                
                
                (122
                )Share-based
      compensation
                
                
                1,057
                
                
                
                663Loss
      from unconsolidated joint ventures
                
                
                258
                
                
                
                -Amortization
      of gain on interest rate swap termination
                
                
                (121
                )
                
                
                (91
                )Income
      tax provision
                
                
                120
                
                
                
                120Changes
      in operating assets and liabilities:Restricted
      cash
                
                
                (3,381
                )
                
                
                (3,809
                )Student
      contracts receivable, net
                
                
                1,810
                
                
                
                819Other
      assets
                
                
                (5,732
                )
                
                
                (2,586
                )Accounts
      payable and accrued expenses
                
                
                (2,783
                )
                
                
                7,511Other
      liabilities
                
                
                (2,785
                )
                
                
                (1,979
                )Net
      cash provided by operating activities
                
                
                11,595
                
                
                
                9,569Investing
      activitiesCash
      paid for property acquisitions
                
                
                (287,245
                )
                
                
                (38,161
                )Cash
      paid for land purchases
                
                
                (3,017
                )
                
                
                -Investments
      in wholly-owned properties
                
                
                (73,007
                )
                
                
                (43,960
                )Investments
      in unconsolidated joint ventures
                
                
                (8,208
                )
                
                
                -Investments
      in on-campus participating properties
                
                
                (196
                )
                
                
                (227
                )Purchase
      of corporate furniture, fixtures and equipment
                
                
                (1,141
                )
                
                
                (516
                )Distributions
      received from unconsolidated JVs
                
                
                15
                
                
                
                -Net
      cash used in investing activities
                
                
                (372,799
                )
                
                
                (82,864
                )Financing
      activitiesProceeds
      from sale of common stock
                
                
                264,500
                
                
                
                -Offering
      costs
                
                
                (12,264
                )
                
                
                -Proceeds
      from sale of preferred stock
                
                
                131
                
                
                
                -Pay-off
      of mortgage loans
                
                
                (24,225
                )
                
                
                -Proceeds
      from contribution of properties to joint venture
                
                
                74,368
                
                
                
                -Proceeds
      from secured term loan
                
                
                100,000
                
                
                
                -Revolving
      credit facility, net
                
                
                (9,600
                )
                
                
                9,100Proceeds
      from construction loans
                
                
                55,051
                
                
                
                17,370Principal
      payments on debt
                
                
                (3,318
                )
                
                
                (3,103
                )Change
      in construction accounts payable
                
                
                (3,279
                )
                
                
                (1,360
                )Debt
      issuance and assumption costs
                
                
                (5,754
                )
                
                
                (1,638
                )Distributions
      to common and restricted stockholders
                
                
                (21,851
                )
                
                
                (15,666
                )Distributions
      to minority partners
                
                
                (1,158
                )
                
                
                (1,555
                )Net
      cash provided by financing activities
                
                
                412,601
                
                
                
                3,148Net
      change in cash and cash equivalents
                
                
                51,397
                
                
                
                (70,147
                )Cash
      and cash equivalents at beginning of period
                
                
                12,073
                
                
                
                79,107Cash
      and cash equivalents at end of period
                
                $
                63,470
                
                
                $
                8,960Supplemental
      disclosure of non-cash investing and financing activitiesIssuance
      of common stock in connection with company acquisition
                
                $
                (154,739
                )
                
                $
                -Issuance
      of Common Units in connection with company acquisition
                
                $
                (199
                )
                
                $
                -Loans
      assumed in connection with property acquisitions
                
                $
                (615,175
                )
                
                $
                (88,307
                )Contribution
      of land from minority partner in development joint venture
                
                $
                -
                
                
                $
                2,756Change
      in fair value of derivative instruments, net
                
                $
                182
                
                
                $
                104Supplemental
      disclosure of cash flow informationInterest
      paid
                
                $
                13,295
                
                
                $
                13,945
 See
accompanying notes to consolidated financial statements.
  4
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  1.     Organization
and Description of Business
 
 American
Campus Communities, Inc. (the “Company”) is a real estate investment trust
(“REIT”) that was incorporated on March 9, 2004 and commenced operations
effective with the completion of an initial public offering (“IPO”) on August
17, 2004.  Through the Company’s controlling interest in American
Campus Communities Operating Partnership LP (the “Operating Partnership”), the
Company is one of the largest owners, managers and developers of high quality
student housing properties in the United States in terms of beds owned and under
management.  The Company is a fully integrated, self-managed and
self-administered equity REIT with expertise in the acquisition, design,
financing, development, construction management, leasing and management of
student housing properties.
 
 On April
23, 2008, the Company completed an equity offering, consisting of the sale of
9,200,000 shares of the Company’s common stock at a price of $28.75 per share,
including the exercise of 1,200,000 shares issued as a result of the exercise of
the underwriters’ overallotment option in full at closing.  The
offering generated gross proceeds of $264.5 million.  The aggregate
proceeds to the Company, net of the underwriting discount, structuring fee and
expenses of the offering, were approximately $252.1 million.
 
 As of
June 30, 2008, the Company’s property portfolio contained 88 student housing
properties with approximately 54,300 beds and approximately 18,200 apartment units, including
42 properties containing approximately 25,000 beds and approximately 8,400 units
added as a result of the Company’s acquisition on June 11, 2008 of the student
housing business of GMH Communities Trust (“GMH”), as more fully discussed in
Note 3 herein.  The Company’s property portfolio consisted of 82 owned
off-campus properties that are in close proximity to colleges and universities,
two American Campus Equity (“ACETM”)
properties currently under development that will be operated under
ground/facility leases with a related university system and four on-campus
participating properties operated under ground/facility leases with the related
university systems.  As of June 30, 2008, the Company also owned a
minority interest in joint ventures that owned an aggregate of 21 student
housing properties with approximately 12,100 beds in approximately 3,600 units.
The Company’s communities contain modern housing units, offer resort-style
amenities and are supported by a resident assistant system and other
student-oriented programming.
 
 Through
the Company’s taxable REIT subsidiaries (“TRS”), it also provides construction
management and development services, primarily for student housing properties
owned by colleges and universities, charitable foundations, and
others.  As of June 30, 2008, the Company provided third-party
management and leasing services for 36 properties (six of which the Company
served as the third-party developer and construction manager) that represented
approximately 25,700 beds in approximately 9,200 units.  Third-party
management and leasing services are typically provided pursuant to multi-year
management contracts that have initial terms that range from one to five
years.  As of June 30, 2008, the Company’s total owned, joint venture
and third-party managed portfolio was comprised of 145 properties with
approximately 92,100 beds in approximately 31,000 units.
 
 2.   Summary of Significant Accounting
Policies
 
 Basis
of Presentation
 
 The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (“GAAP”) and
include the financial position, results of operations and cash flows of the
Company, the Operating Partnership and subsidiaries of the Operating
Partnership, including joint ventures in which the Company has a controlling
interest.  Third-party equity interests in the Operating Partnership
and consolidated joint ventures are reflected as minority interests in the
consolidated financial statements.  The Company also has a
non-controlling interest in three unconsolidated joint ventures, which are
accounted for under the equity method.  All significant intercompany
amounts have been eliminated.  All dollar amounts in the tables
herein, except share and per share amounts, are stated in thousands unless
otherwise indicated.
 
 New Accounting
Pronouncements
 
 Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standard
(“SFAS”) No. 157, "Fair Value
Measurements" and SFAS No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities."  SFAS No. 157 defines fair
value, establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measurements.  SFAS No. 159 permits an
entity to elect fair value as the initial and subsequent measurement method for
financial assets and liabilities.  The Company has not elected the
fair value option for any financial instruments, however does reserve the right
to elect to measure future eligible financial assets or liabilities at fair
value.  The adoption of SFAS No. 157 and SFAS No. 159 did not have a
material impact on the Company’s consolidated financial
statements.  See Note 13 herein for a detailed discussion of fair
value disclosures.
  5
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 PendingAccounting
Pronouncements
 
 In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations,"which replaces SFAS No. 141, " Business Combinations,"which, among other things, establishes principles and requirements for
how an acquirer entity recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed (including intangibles)
and any noncontrolling interests in the acquired entity. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company is currently evaluating what impact the adoption
of SFAS No. 141(R) will have on its consolidated financial
statements.
 
 In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51.”SFAS No.
160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also amends certain of ARB 51’s consolidation procedures for
consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is effective
for the Company beginning January 1, 2009.  The Company is currently
evaluating what impact the adoption of SFAS No. 160 will have on its
consolidated financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities,” which is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows.  SFAS No. 161 will be effective for the Company beginning
January 1, 2009.  The Company is currently evaluating what impact the
adoption of SFAS No. 161 will have on its consolidated financial statements, but
anticipates it will only result in additional disclosures regarding derivative
instruments.
 
 Interim
Financial Statements
 
 The
accompanying interim financial statements are unaudited, but have been prepared
in accordance with GAAP for interim financial information and in conjunction
with the rules and regulations of the Securities and Exchange
Commission.  Accordingly, they do not include all disclosures required
by GAAP for complete financial statements.  In the opinion of
management, all adjustments (consisting solely of normal recurring matters)
necessary for a fair presentation of the financial statements for these interim
periods have been included.  Because of the seasonal nature of the
Company’s operations, the results of operations and cash flows for any interim
period are not necessarily indicative of results for other interim periods or
for the full year.  These financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December, 31,
2007.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
 
 Investments in Real
Estate
 
 Investments
in real estate are recorded at historical cost.  Major improvements
that extend the life of an asset are capitalized and depreciated over the
remaining useful life of the asset.  The cost of ordinary repairs and
maintenance is charged to expense when incurred.  Depreciation and
amortization are recorded on a straight-line basis over the estimated useful
lives of the assets as follows:
 
 Buildings
      and improvements
                
                7-40
      yearsLeasehold
      interest - on-campus
                  participating
      properties
                
                25-34
      years (shorter of useful life or respective lease term)Furniture,
      fixtures and equipment
                
                3-7
      years
  6
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 The cost
of buildings and improvements includes the purchase price of the property,
including legal fees and acquisition costs.  Project costs directly
associated with the development and construction of an owned real estate
project, which include interest, property taxes, and amortization of deferred
finance costs, are capitalized as construction in progress.  Upon
completion of the project, costs are transferred into the applicable asset
category and depreciation commences.  Interest totaling approximately
$2.0 million and $1.5 million was capitalized during the three months ended June
30, 2008 and 2007, respectively, and $3.7 million and $2.6 million was
capitalized during the six months ended June 30, 2008 and 2007,
respectively.  Amortization of deferred financing costs totaling
approximately $0.1 million was capitalized during both the three month periods
ended June 30, 2008 and 2007, and approximately $0.2 million was capitalized
during both the six month periods ended June 30, 2008 and 2007.
 
 Management
assesses whether there has been an impairment in the value of the Company’s
investments in real estate whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be
recoverable.  Impairment is recognized when estimated expected future
cash flows (undiscounted and before interest charges) are less than the carrying
value of the property. The estimation of expected future net cash flows is
inherently uncertain and relies on assumptions regarding current and future
economics and market conditions.  If such conditions change, then an
adjustment to the carrying value of the Company’s long-lived assets could occur
in the future period in which the conditions change. To the extent that a
property is impaired, the excess of the carrying amount of the property over its
estimated fair value is charged to earnings. The Company believes that there
were no impairments of the carrying values of its investments in real estate as
of June 30, 2008.
 
 The
Company allocates the purchase price of acquired properties to net tangible and
identified intangible assets based on relative fair values in accordance with
Statement of Financial Accounting Standard (“SFAS”) No. 141, Business
Combinations.  Fair value estimates are based on information
obtained from a number of sources, including independent appraisals that may be
obtained in connection with the acquisition or financing of the respective
property and other market data.  Information obtained about each
property as a result of due diligence, marketing and leasing activities is also
considered.  The value of in-place leases is based on the difference
between (i) the property valued with existing in-place leases adjusted to market
rental rates and (ii) the property valued “as-if” vacant.  As lease
terms are typically one year or less, rates on in-place leases generally
approximate market rental rates.  Factors considered in the valuation
of in-place leases include an estimate of the carrying costs during the expected
lease-up period considering current market conditions, nature of the tenancy,
and costs to execute similar leases.  Carrying costs include estimates
of lost rentals at market rates during the expected lease-up period, as well as
marketing and other operating expenses.  The value of in-place leases
is amortized over the remaining initial term of the respective leases, generally
less than one year.  The purchase price of property acquisitions is
not expected to be allocated to tenant relationships, considering the terms of
the leases and the expected levels of renewals.  The Company’s
allocation of purchase price is contingent upon the receipt of final third-party
appraisals and additional analyses necessary to finalize the
allocation.
 
 Intangible
Assets
 
 In
connection with property acquisitions completed during the six months ended June
30, 2008 and 2007, the Company capitalized approximately $16.8 million and $1.2
million, respectively, related to management’s estimate of the fair value of the
in-place leases assumed.  These intangible assets are amortized on a
straight-line basis over the average remaining term of the underlying
leases.  The Company also capitalized $1.5 million related to
management’s estimate of the fair value of third-party management contracts
acquired from GMH in June 2008.  These intangible assets are amortized
on a straight-line basis over the average remaining term of the
contracts.  The amortization is included in depreciation and
amortization expense in the accompanying consolidated statements of
operations.  See Note 3 herein for a detailed discussion of the
property acquisitions completed during the six months ended June 30,
2008.
 
 Debt
Premiums and Discounts
 
 Debt
premiums and discounts represent fair value adjustments to account for the
difference between the stated rates and market rates of debt assumed in
connection with the Company’s property acquisitions.  The debt
premiums and discounts are amortized to interest expense over the term of the
related loans using the effective-interest method.  As of June 30,
2008 and December 31, 2007, unamortized debt premiums were $6.8 million and $5.0
million, respectively, and unamortized debt discounts were $12.2 million and
$0.7 million, respectively.  Debt premiums and discounts are included
in secured debt on the accompanying consolidated balance sheets.
 
 7
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Third-Party
Development Services Revenue and Costs
 
 Development
revenues are generally recognized based on a proportionate performance method
based on contract deliverables, while construction revenues are recognized using
the percentage of completion method, as determined by construction costs
incurred relative to total estimated construction costs.  Costs
associated with such projects are deferred and recognized in relation to the
revenues earned on executed contracts.  For projects where the
Company’s fee is based on a fixed price, any cost overruns incurred during
construction, as compared to the original budget, will reduce the net fee
generated on those projects.  Incentive fees are generally recognized
when the project is complete and performance has been agreed upon by all
parties, or when performance has been verified by an
independent third-party.  The Company also evaluates the
collectibility of fee income and expense reimbursements generated through the
provision of development and construction management services based upon the
individual facts and circumstances, including the contractual right to receive
such amounts in accordance with the terms of the various projects, and reserves
any amounts that are deemed to be uncollectible.
 
 Pre-development
expenditures such as architectural fees, permits and deposits associated with
the pursuit of third-party and owned development projects are expensed as
incurred, until such time that management believes it is probable that the
contract will be executed and/or construction will commence.  Because
the Company frequently incurs these pre-development expenditures before a
financing commitment and/or required permits and authorizations have been
obtained, the Company bears the risk of loss of these pre-development
expenditures if financing cannot ultimately be arranged on acceptable terms or
the Company is unable to successfully obtain the required permits and
authorizations.  As such, management evaluates the status of
third-party and owned projects that have not yet commenced construction on a
periodic basis and expenses any deferred costs related to projects whose current
status indicates the commencement of construction is unlikely and/or the costs
may not provide future value to the Company in the form of
revenues.  Such write-offs are included in third-party development and
management services expenses (in the case of third-party development projects)
or general and administrative expenses (in the case of owned development
projects) on the accompanying consolidated statements of
operations.  As of June 30, 2008, the Company deferred approximately
$6.3 million in pre-development costs related to third-party and owned
development projects that had not yet commenced construction.  Of this
amount, approximately $3.2 million was reimbursed subsequent to quarter end as
financing for one of our third-party development projects closed on July 30,
2008 and construction commenced on August 1, 2008.  Pre-development
costs are included in other assets on the accompanying consolidated balance
sheets.
 
 Joint Ventures
 
 The Company holds interests in both
consolidated and unconsolidated joint ventures. The Company determines
consolidation based on standards set forth in FASB Interpretation
No. 46R,Consolidation of
Variable Interest Entities(“FIN 46”) and
Emerging Issues Task Force (EITF) Issue No. 04-5,Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights.For
joint ventures that are variable interest entities as defined under FIN 46
where the Company is not the primary beneficiary, it does not consolidate the
joint venture for financial reporting purposes. Based on the guidance set forth
in EITF 04-5, the Company consolidates certain joint venture investments
because it exercises significant control over major operating decisions, such as
approval of budgets, property management, investment activity and changes in
financing.  For joint ventures under EITF 04-5, where the Company
does not exercise significant control over major operating and management
decisions, but where it exercises significant influence, the Company uses the
equity method of accounting and does not consolidate the joint venture for
financial reporting purposes.
 
 Income
Taxes
 
 The
Company and GMH have elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the “Code”).  To qualify as a REIT, these
entities must meet a number of organizational and operational requirements,
including a requirement that they currently distribute at least 90% of their
adjusted taxable income to their stockholders.   As REITs, these
entities will generally not be subject to corporate level federal income tax on
taxable income they currently distribute to their stockholders. If the entities
fail to qualify as a REIT in any taxable year, they will be subject to federal
income taxes at regular corporate rates (including any applicable alternative
minimum tax) and may not be able to qualify as a REIT for the subsequent four
taxable years.   Even if these entities qualify for taxation as a
REIT, they may be subject to certain state and local income and excise taxes on
their income and property, and to federal income and excise taxes on their
undistributed income.
 
 8
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 The
Company owns two TRS entities that manage the Company’s non-REIT activities and
are subject to federal, state and local income taxes.
 
 Earnings
Per Share
 
 Basic
earnings per share is computed using net income (loss) and the weighted average
number of shares of the Company’s common stock outstanding during the
period.  Diluted earnings per share reflects weighted average common
shares issuable from the assumed conversion of restricted stock awards (“RSAs”)
granted to employees and common and preferred units of limited partnership
interest in the Operating Partnership (“Common Units” and “Series A Preferred
Units,” respectively).  See Note 7 for a discussion of Common Units
and Series A Preferred Units.
 
 The
following is a summary of the elements used in calculating basic and diluted
earnings per share:
 Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Basic
      earnings per share calculation:(Loss)
      income from continuing operations
                
                $
                (1,542
                )
                
                $
                (785
                )
                
                $
                3,367
                
                
                $
                (5,463
                )Discontinued
      operations
                
                
                92
                
                
                
                -
                
                
                
                92
                
                
                
                -Net
      (loss) income
                
                $
                (1,450
                )
                
                $
                (785
                )
                
                $
                3,459
                
                
                $
                (5,463
                )(Loss)
      income from continuing operations – per share
                
                $
                (0.04
                )
                
                $
                (0.03
                )
                
                $
                0.11
                
                
                $
                (0.24
                )Income
      from discontinued operations – per share
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Net
      (loss) income – per share
                
                $
                (0.04
                )
                
                $
                (0.03
                )
                
                $
                0.11
                
                
                $
                (0.24
                )Basic
      weighted average common shares outstanding
                
                
                35,692,653
                
                
                
                23,271,223
                
                
                
                31,512,271
                
                
                
                23,107,888Diluted
      earnings per share calculation:(Loss)
      income from continuing operations
                
                $
                (1,542
                )
                
                $
                (785
                )
                
                $
                3,367
                
                
                $
                (5,463
                )Series
      A Preferred Unit distributions
                
                
                46
                
                
                
                46
                
                
                
                92
                
                
                
                92(Loss)
      income from continuing operations allocated to
                  Common
      Units
                
                
                (36
                )
                
                
                (55
                )
                
                
                224
                
                
                
                (417
                )(Loss)
      income from continuing operations, as adjusted
                
                
                (1,532
                )
                
                
                (794
                )
                
                
                3,683
                
                
                
                (5,788
                )Discontinued
      operations
                
                
                92
                
                
                
                -
                
                
                
                92
                
                
                
                -Income
      from discontinued operations allocated to
                  Common
      Units
                
                
                2
                
                
                
                -
                
                
                
                2
                
                
                
                -Income
      from discontinued operations, as adjusted
                
                
                94
                
                
                
                -
                
                
                
                94
                
                
                
                -Net
      (loss) income, as adjusted
                
                $
                (1,438
                )
                
                $
                (794
                )
                
                $
                3,777
                
                
                $
                (5,788
                )(Loss)
      income from continuing operations – per share
                
                $
                (0.04
                )
                
                $
                (0.03
                )
                
                $
                0.11
                
                
                $
                (0.23
                )Income
      from discontinued operations – per share
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Net
      (loss) income – per share
                
                $
                (0.04
                )
                
                $
                (0.03
                )
                
                $
                0.11
                
                
                $
                (0.23
                )Basic
      weighted average common shares outstanding
                
                
                35,692,653
                
                
                
                23,271,223
                
                
                
                31,512,271
                
                
                
                23,107,888Common
      Units
                
                
                1,291,361
                
                
                
                1,873,149
                
                
                
                1,369,997
                
                
                
                2,027,461Series
      A Preferred Units
                
                
                114,963
                
                
                
                114,963
                
                
                
                114,963
                
                
                
                114,963RSAs
      (1)
                
                
                -
                
                
                
                -
                
                
                
                275,123
                
                
                
                -Diluted
      weighted average common shares outstanding
                
                
                37,098,977
                
                
                
                25,259,335
                
                
                
                33,272,354
                
                
                
                25,250,312
  (1)
                284,588
      and 164,151 weighted average RSAs are excluded from diluted weighted
      average common shares outstanding for the three months ended June 30, 2008
      and 2007, respectively, and 158,788 weighted average RSAs are excluded
      from diluted weighted average common shares outstanding for the six months
      ended June 30, 2007, because they would be anti-dilutive due to the
      Company’s loss position for these
periods.
  9
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 3.  Property
Acquisitions
 
 On June
11, 2008, the Company completed the acquisition of GMH pursuant to an Agreement
and Plan of Merger dated as of February 11, 2008 (the “Merger
Agreement”).  At the time of closing, the GMH student housing
portfolio consisted of 42 wholly-owned properties containing 24,953 beds located
in various markets throughout the country.  Two of the acquired
wholly-owned properties were sold subsequent to the end of the quarter (see Note
16).
 
 The
aggregate consideration paid for the merger was as follows:
 
 Fair
      value of the Company’s common stock issued
                
                $
                154,739Fair
      value of Common Units issued
                
                
                199Cash
      consideration paid for GMH common shares and partnership
    units
                
                
                239,616Merger
      costs
                
                
                52,681Total
    consideration
                
                
                447,235Fair
      value of mortgage loans assumed (see Note 9)
                
                
                598,804Total
      purchase price
                
                $
                1,046,039
 
 Under the
terms of the Merger Agreement, each share of GMH common stock and each unit in
the GMH Operating Partnership issued and outstanding as of the date of the
Merger Agreement, received cash consideration of $3.36 per share and 0.07642 of
a share of the Company’s common stock, or at the election of the GMH Operating
Partnership unitholder, 0.07642 of a unit in the Operating
Partnership.  The value of the Company’s common stock and Common Units
issued was based on the closing price of the Company’s common stock on February
11, 2008.  The Company issued 5.4 million shares of common stock and
7,004 Common Units valued at $28.43 per share.
 
 In
connection with the merger, the Company incurred approximately $52.7 million of
merger costs related to severance, legal, banking, accounting and finance costs,
of which, approximately $16.3 million of these costs had not been paid as of
June 30, 2008.
 
 Concurrent
with the closing of the GMH acquisition, the Company formed a joint venture with
a wholly-owned subsidiary of Fidelity Real Estate Growth Fund III, LP
(“Fidelity”) and transferred 15 GMH student housing properties to the venture
with an estimated value of $325.9 million.  The Company also assumed GMH’s
equity interest in an existing joint venture with Fidelity that owns six
properties.  The Company serves as property manager for all of the joint
venture properties and owns a 10% equity interest in these joint
ventures.
  In
February 2008, the Company acquired a 144-unit, 528-bed property (Pirate’s
Place) located near the campus of East Carolina University in Greenville, North
Carolina, for a purchase price of $10.6 million, which excludes $0.8 million of
anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring this property up to the Company’s operating
standards.  As part of the transaction, the Company assumed
approximately $7.0 million in fixed-rate mortgage debt with an annual interest
rate of 7.15% and remaining term to maturity of 14.9 years.
 
 In
February 2008, the Company also acquired a 68-unit, 161-bed property (Sunnyside
Commons) located near the campus of West Virginia University in Morgantown, West
Virginia, for a purchase price of $7.5 million, which excludes $0.6 million of
anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring this property up to the Company’s operating
standards.  The Company did not assume any debt as part of this
transaction.
 
 The
acquired properties’ results of operations have been included in the
accompanying consolidated statements of operations since their respective
acquisition closing dates.  The following pro forma information for
the three and six months ended June 30, 2008 and 2007 presents consolidated
financial information for the Company as if the property acquisitions discussed
above, the Company’s 2007 acquisitions and the Company’s October 2007 and April
2008 equity offerings had occurred at the beginning of the earliest period
presented.  The unaudited pro forma information is provided for
informational purposes only and is not indicative of results that would have
occurred or which may occur in the future:
 
 10
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Total
      revenues
                
                $
                67,610
                
                
                $
                64,645
                
                
                $
                140,845
                
                
                $
                133,965Net
      (loss) income
                
                $
                (2,065
                )
                
                $
                (5,994
                )
                
                $
                2,669
                
                
                $
                (15,780
                )Net
      (loss) income per share – basic
                
                $
                (0.05
                )
                
                $
                (0.14
                )
                
                $
                0.06
                
                
                $
                (0.38
                )Net
      (loss) income per share – diluted
                
                $
                (0.05
                )
                
                $
                (0.14
                )
                
                $
                0.06
                
                
                $
                (0.38
                )
 
 4.  Discontinued
Operations
 
 As part
of the acquisition of GMH on June 11, 2008, the Company acquired two properties
(The Courtyards and The Verge) that were under contract to be sold as of the
closing date.  In accordance with the provisions of Statement of Financial Accounting
Standards No.144,Accounting for the
Impairment or Disposal of Long-Lived Assets(“SFAS 144”), management
classified these properties as wholly-owned properties-held for
sale.  The dispositions of The Courtyards and The Verge were
consummated in July 2008 and August 2008, respectively (see Note
16).
 
 The
related net income of the aforementioned properties is reflected in the
accompanying consolidated statements of operations as discontinued operations
for the three and six months ended June 30, 2008.  Below is a summary
of the results of operations for The Courtyards and The Verge for the three and
six months ended June 30, 2008:
 
 Three
      and Six MonthsEnded
      June 30, 2008Total
      revenues
                
                $
                342Total
      operating expenses
                
                
                (106
                )Operating
      income
                
                
                236Total
      nonoperating expense
                
                
                (144
                )Net
      income
                
                $
                92
 
 
 5.  Investments
in Wholly-owned Properties
 
 Wholly-owned
properties consisted of the following:
 
 June
      30, 2008
                
                
                December
      31, 2007Land
                
                $
                223,948
                
                
                $
                102,109Buildings
      and improvements
                
                
                1,546,218
                
                
                
                768,551Furniture,
      fixtures and equipment
                
                
                68,627
                
                
                
                42,225Construction
      in progress
                
                
                178,162
                
                
                
                104,5402,016,955
                
                
                
                1,017,425Less
      accumulated depreciation
                
                
                (85,639
                )
                
                
                (70,363
                )Wholly-owned
      properties, net
                
                $
                1,931,316
                
                
                $
                947,062
 
 The
Company completed the acquisition of GMH on June 11, 2008 and the acquired
properties are included in the wholly-owned properties, net balance as of June
30, 2008.  The Company’s allocation of the purchase price for GMH is
contingent upon the receipt of final third-party appraisals and additional
analyses necessary to finalize the allocation.
 
 6.  On-Campus
Participating Properties
 
 The
Company is a party to ground/facility lease agreements (“Leases”) with certain
state university systems and colleges (each, a “Lessor”) for the purpose of
developing, constructing, and operating student housing facilities on university
campuses. Under the terms of the Leases, title to the constructed facilities is
held by the applicable Lessor and such Lessor receives a de minimus base rent
paid at inception and 50% of defined net cash flows on an annual basis through
the term of the lease.  The Leases terminate upon the earlier to occur
of the final repayment of the related debt, the amortization period of which is
contractually stipulated, or the end of the lease term.
 
 11
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Pursuant
to the Leases, in the event the leasehold estates do not achieve Financial Break
Even (defined as revenues less operating expenses, excluding management fees,
less debt service), the applicable Lessor would be required to make a rental
payment, also known as the Contingent Payment, sufficient to achieve Financial
Break Even.  The Contingent Payment provision remains in effect until
such time as any financing placed on the facilities would receive an investment
grade rating without the Contingent Payment provision.  In the event
that the Lessor is required to make a Contingent Payment, future net cash flow
distributions would be first applied to repay such Contingent Payments and then
to unpaid management fees prior to normal distributions.  Beginning in
November 1999 and December 2002, as a result of the debt financing on the
facilities achieving investment grade ratings without the Contingent Payment
provision, the Texas A&M University System is no longer required to make
Contingent Payments under either the Prairie View A&M University Village or
University College Leases.  The Contingent Payment obligation
continues to be in effect for the Texas A&M International University and
University of Houston leases.
 
 In the
event the Company seeks to sell its leasehold interest, the Leases provide the
applicable Lessor the right of first refusal of a bona fide purchase offer and
an option to purchase the lessee’s rights under the applicable
Lease.
 In
conjunction with the execution of each Lease, the Company has entered into
separate five-year agreements to manage the related facilities for 5% of defined
gross receipts. The five-year terms of the management agreements are not
contingent upon the continuation of the Leases. Upon expiration of the initial
five year terms, the agreements continue on a month-to-month basis.
 
 On-campus
participating properties are as follows:
 
 Historical
      CostLessor/University
                
                Lease
                  Commencement
                Required
      Debt
                  Repayment
      (1)
                
                June
      30, 2008
                
                
                December
      31, 2007Texas
      A&M University System /
                  Prairie
      View A&M University (2)
                
                2/1/96
                9/1/23
                
                $
                38,588
                
                
                $
                38,499Texas
      A&M University System /
                  Texas
      A&M International
                
                2/1/96
                9/1/23
                
                
                6,045
                
                
                
                6,039Texas
      A&M University System /
                  Prairie
      View A&M University (3)
                
                10/1/99
                8/31/25  /  8/31/28
                
                
                24,087
                
                
                
                24,037University
      of Houston System /
                  University
      of Houston (4)
                
                9/27/00
                8/31/35
                
                
                34,742
                
                
                
                34,691103,462
                
                
                
                103,266Less
      accumulated amortization
                
                
                
                
                
                (32,503
                )
                
                
                (30,361
                )On-campus
      participating properties, net
                
                
                
                
                $
                70,959
                
                
                $
                72,905
 
 (1)
                Represents
      the effective lease termination date.  The Leases terminate upon
      the earlier to occur of the final repayment of the related debt or the end
      of the contractual lease term.
  (2)
                Consists
      of three phases placed in service between 1996 and
  1998.
  (3)
                Consists
      of two phases placed in service in 2000 and
  2003.
  (4)
                Consists
      of two phases placed in service in 2001 and
  2005.
 
 7. 
  Minority Interests
 
 The
Company consolidates the accounts of the Operating Partnership and its
subsidiaries into its consolidated financial statements.  However, the
Company does not own 100% of the Operating Partnership and certain consolidated
real estate joint ventures.  The amounts reported as minority
interests on the Company’s consolidated balance sheets reflect the portion of
these consolidated entities’ equity that the Company does not
own.  Accordingly, the amounts reported as minority interest on the
Company’s consolidated statements of operations reflect the portion of these
consolidated entities’ net income or loss not allocated to the
Company.
  Equity
interests in the Operating Partnership not owned by the Company are held in the
form of Common Units and Series A Preferred Units.  Common Units and
Series A Preferred Units are exchangeable into an equal number of shares of the
Company’s common stock, or, at the Company’s election, cash.  A Common
Unit and a share of the Company’s common stock have essentially the same
economic characteristics, as they effectively participate equally in the net
income and distributions of the Operating Partnership.  Series A
Preferred Units have a cumulative preferential per annum cash distribution rate
of 5.99%, payable quarterly concurrently with the payment of dividends on the
Company’s common stock.
 
 12
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Income or
loss allocated to minority interests on the Company’s consolidated statements of
operations includes the Series A Preferred Unit distributions as well as the pro
rata share of the Operating Partnership’s net income or loss allocated to Common
Units.  The Common Unitholders’ minority interest in the Operating
Partnership is reported at an amount equal to their ownership percentage of the
net equity of the Operating Partnership at the end of each reporting
period.  Common Units and Series A Preferred Units issued in
connection with the 2006 acquisition of the Royal Portfolio became exchangeable
into an equal number of shares of the Company’s common stock on March 1,
2007.  As a result, 326,432 Common Units were converted into shares of
the Company’s common stock during the six months ended June 30,
2008.  As of June 30, 2008 and December 31, 2007, approximately 3% and
6%, respectively, of the equity interests of the Operating Partnership was held
by persons affiliated with Royal Properties and certain current and former
members of management in the form of Common Units and Series A Preferred
Units.
 
 Minority
interests also include the equity interests of unaffiliated joint venture
partners in four joint ventures.  Three of the joint ventures own and
operate the Company’s Callaway House, University Village at Sweet Home and
University Centre owned-off campus properties.  The other joint
venture was formed to develop, own, and operate the Company’s Villas at Chestnut
Ridge owned off-campus property, which is scheduled to open for occupancy in
August 2008.
 
 8.  Investment in Unconsolidated Joint
Ventures
 
 Concurrent
with the closing of the GMH acquisition, the Company formed a joint venture with
a subsidiary of Fidelity and transferred 15 GMH student housing properties to
the venture with an estimated value of $325.9 million.  The Company
also assumed GMH’s equity interest in an existing joint venture with Fidelity
that owns six properties.  The Company serves as property manager for
all of the joint venture properties and owns a 10% equity interest in these
joint ventures.  The Company’s $8.1 million investment in these two
joint ventures at June 30, 2008 is included in other assets in the accompanying
consolidated balance sheets, and the Company’s $46,000 share in the loss from
these two joint ventures for both the three and six months ended June 30, 2008
is included in loss from unconsolidated joint ventures in the accompanying
consolidated statements of operations.
 
 The
Company also holds a minority
equity interest in a joint venture that owns a military housing privatization
project with the United States Navy to design, develop, construct, renovate, and
manage unaccompanied soldier housing located on naval bases in Norfolk
and Newport News, Virginia.  In December 2007, the joint venture
closed and obtained financing through taxable revenue bonds, at which time
definitive legal agreements were executed.  The Company’s $1.3 million
and $1.5 million investment in this joint venture at June 30, 2008 and December
31, 2007, respectively, is included in other assets in the accompanying
consolidated balance sheets, and the Company’s $0.1 million and $0.2 million
share in the loss from this joint venture for the three and six months ended
June 30, 2008, respectively, is included in loss from unconsolidated joint
ventures in the accompanying consolidated statements of operations.
 
 9.  Debt
 
 A summary
of the Company’s outstanding consolidated indebtedness, including unamortized
debt premiums and discounts, is as follows:
 
 June
      30, 2008
                
                
                December
      31, 2007Debt
      secured by wholly-owned properties:Mortgage
      loans payable
                
                $
                1,009,161
                
                
                $
                397,270Construction
      loans payable
                
                
                98,703
                
                
                
                43,6521,107,864
                
                
                
                440,922Debt
      secured by on-campus participating properties:Mortgage
      loans payable
                
                
                33,123
                
                
                
                33,156Bonds
      payable
                
                
                55,030
                
                
                
                55,03088,153
                
                
                
                88,186Secured
      term loan
                
                
                100,000
                
                
                
                -Revolving
      credit facility
                
                
                -
                
                
                
                9,600Unamortized
      debt premiums
                
                
                6,779
                
                
                
                4,988Unamortized
      debt discounts
                
                
                (12,244
                )
                
                
                (666
                )Total
      debt
                
                $
                1,290,552
                
                
                $
                543,030
 
 13
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Loans
Assumed in Conjunction with Property Acquisition
 
 In
connection with the June 11, 2008 acquisition of the GMH Portfolio (see Note 3),
the Company assumed approximately $608.2 million of fixed rate debt mortgage
debt.  At the time of assumption, the debt had a weighted average
interest rate of 5.43% and an average term to maturity of 6.2
years.  Upon assumption of this debt, the Company recorded debt
discounts and debt premiums of approximately $11.7 million and $2.3 million,
respectively, to reflect the estimated fair value of the debt
assumed.  These mortgage loans are secured by the related
properties.
 
 In
connection with the February 2008 acquisition of Pirate’s Place (see Note 3), a
wholly-owned property, the Company assumed approximately $7.0 million of
fixed-rate mortgage debt with an annual interest rate of 7.15% and January 2023
maturity date.  Upon assumption of this debt, the Company recorded a
debt premium of approximately $0.3 million, to reflect the estimated fair value
of the debt assumed.  This mortgage loan is secured by a lien on the
related property.
 
 Revolving
Credit Facility
 
 In May
2008, the Operating Partnership amended its $115 million revolving credit
facility to increase the size of the facility to $160 million, which may be
expanded by up to an additional $65 million upon the satisfaction of certain
conditions.  The maturity date of the facility is August 17, 2009 and
the Company continues to guarantees the Operating Partnership’s obligations
under the facility.
  Availability
under the revolving credit facility is limited to an "aggregate borrowing base
amount" equal to the lesser of (i) 65% of the value of certain properties,
calculated as set forth in the credit facility, and (ii) the adjusted net
operating income from these properties divided by a formula
amount.  The facility bears interest at a variable rate, at the
Company’s option, based upon a base rate or one-, two-, three-, or six-month
LIBOR plus, in each case, a spread based upon the Company’s total
leverage.  Additionally, the Company is required to pay an unused
commitment fee ranging from 0.15% to 0.20% per annum, depending on the aggregate
unused balance.  In April 2008, the Company paid off the entire
balance on the revolving credit facility using proceeds from its equity offering
(see Note 1).  As of June 30, 2008, the total availability under the
facility balance (subject to the satisfaction of certain financial covenants)
totaled approximately $154.3 million.
 
 The terms
of the facility include certain restrictions and covenants, which limit, among
other items, the incurrence of additional indebtedness, liens, and the
disposition of assets. The facility contains customary affirmative and negative
covenants and also contains financial covenants that, among other things,
require the Company to maintain certain minimum ratios of "EBITDA" (earnings
before interest, taxes, depreciation and amortization) to fixed
charges.  The Company may not pay distributions that exceed 100% of
funds from operations for any four consecutive quarters.  The
financial covenants also include consolidated net worth and leverage ratio
tests.  As of June 30, 2008, the Company was in compliance with all
such covenants.
 
 Senior
Secured Term Loan
 
 On May
23, 2008, the Operating Partnership obtained a $100 million senior secured term
loan.  The secured term loan has an initial term of 36 months and can
be extended through May 2012 through the exercise of a 12-month extension
period.  The secured term loan bears interest at a variable rate, at
the Company’s option, based upon a base rate or one-, two-, three-, or six-month
LIBOR plus, in each case, a spread based upon the Company’s total
leverage.  On June 11, 2008, the Operating Partnership borrowed in
full from the secured term loan and used the proceeds to fund a portion of the
total cash consideration for the GMH acquisition.  As of June 30,
2008, the balance outstanding on the secured term loan was $100 million, bearing
interest at a rate of 3.95%.  The Company guarantees the Operating
Partnership’s obligations under the secured term loan.  The secured
term loan includes the same restrictions and covenants as the revolving credit
facility, described above.
 
 10.  Incentive
Award Plan
 
 Pursuant
to the 2004 Incentive Award Plan (the “Plan”), selected employees and directors
of the Company and the Company’s affiliates are granted stock options, RSUs,
RSAs, Common Units, profit interest units (“PIUs”), and other stock-based
incentive awards.  The Company has reserved a total of 1,210,000
shares of the Company’s common stock for issuance pursuant to the Plan, subject
to certain adjustments for changes in the Company’s capital structure, as
defined in the Plan.  As of June 30, 2008, 585,232 shares were
available for issuance under the Plan.
 
 14
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Restricted
Stock Units
 
 Upon
initial appointment to the Board of Directors and reelection to the Board of
Directors at each Annual Meeting of Stockholders, each outside member of the
Board of Directors is granted RSUs.  For all 2006 and 2007 RSU grants,
no shares of stock were issued at the time of the RSU awards, and the Company
was not required to set aside a fund for the payment of any such award; however,
the stock was deemed to be awarded on the date of grant.  Upon the
Settlement Date, which is three years from the date of grant, the Company will
deliver to the recipients a number of shares of common stock or cash, as
determined by the Compensation Committee of the Board of Directors, equal to the
number of RSUs held by the recipients.  In addition, recipients of
RSUs are entitled to dividend equivalents equal to the cash distributions paid
by the Company on one share of common stock for each RSU issued, payable
currently or on the Settlement Date, as determined by the Compensation Committee
of the Board of Directors.
 
 Upon
reelection to the Board of Directors in May 2008, the Chairman of the Board of
Directors was granted RSUs valued at $42,500 and the remaining outside members
were each granted RSUs valued at $32,500.  In connection with the GMH
acquisition on June 11, 2008, the Company appointed a new member to the Board of
Directors and granted RSUs valued at $32,500.  The number of RSUs was
determined based on the fair market value of the company’s stock on the date of
grant, as defined in the Plan.  All awards vested and settled
immediately on the date of grant; accordingly, a compensation charge of
approximately $0.2 million was recorded during the three months ended June 30,
2008 related to these awards.  A summary of the Company’s RSUs under
the Plan as of June 30, 2008 and changes during the six months ended June 30,
2008, is presented below:
 
 Number
      of
                  RSUsOutstanding
      at December 31, 2007
                
                
                18,786Granted
                
                
                7,831Settled
      in common shares
                
                
                (10,834
                )Settled
      in cash
                
                
                (3,164
                )Outstanding
      at June 30, 2008
                
                
                12,619
 
 Restricted
Stock Awards
 
 The
Company awards RSAs to its executive officers and certain employees that vest in
equal annual installments over a three to five year period.  Unvested
awards are forfeited upon the termination of an individual’s employment with the
Company.  Recipients of RSAs receive dividends, as declared by the
Company’s Board of Directors, on unvested shares, provided that the recipients
continue to be employees of the Company.  A summary of the Company’s
RSAs under the Plan as of June 30, 2008 and changes during the six months ended
June 30, 2008, is presented below:
 
 Number
      of
                  RSAsNonvested
      balance at December 31, 2007
                
                
                178,921Granted
                
                
                151,492Vested
                
                
                (32,353
                )Forfeited
                
                
                (14,172
                )Nonvested
      balance at June 30, 2008
                
                
                283,888
 
 In
accordance with SFAS No. 123(R), the Company recognizes the value of these
awards as an expense over the vesting periods, which amounted to approximately
$0.5 million and $0.3 million for the three months ended June 30, 2008 and 2007,
respectively, and $0.9 million and $0.5 million for the six months ended June
30, 2008 and 2007, respectively.
 
 Common
Units/PIUs
 
 PIUs were
issued to certain executive and senior officers upon consummation of the
IPO.  In connection with the Company’s equity offering in July 2005,
all 121,000 PIUs were converted to Common Units, as contemplated in the OP
Agreement.
 
 The
Outperformance Bonus Plan was adopted upon consummation of the Company’s IPO in
August 2004, and consisted of awards to key employees equal to the value of
367,682 shares of the Company’s common stock.  Such awards vested on
the third anniversary of the IPO (August 2007), upon the Company’s achievement
of specified performance measures.  Upon vesting, the Compensation
Committee of the Board of Directors exercised its permitted discretion and
granted 132,400 of the awards to selected recipients in the form of PIUs, with
the remainder of the awards paid in cash in the amount of $6.7
million.  During the three and six months ended June 30, 2007, the
Company recorded a compensation charge of approximately $0.3 million and $9.9
million, respectively, to reflect the value of such awards.  As a
result of the October 2007 equity offering, a book-up event occurred for tax
purposes, resulting in the 132,400 PIUs being converted to Common
Units.
 
 15
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Each
Common Unit is deemed equivalent to one share of the Company’s common
stock.  Common Units receive the same quarterly per unit distribution
as the per share distributions on the Company’s common stock.
 
 11.  Preferred
Stock
 
 As part
of the Company’s acquisition of GMH, the Company acquired the GMH REIT, an
entity that has elected to be taxed as a REIT under the Code.  In
order to ensure that the entity meets certain organizational requirements, this
entity issued 131 shares of 15% Series A Cumulative Non-voting Preferred
Stock.  Holders of Series A Preferred Stock are entitled to receive,
when and as authorized by the Company’s Board of Directors, cumulative
preferential cash dividends at the rate of 15% per annum of the total of $1,000
per share plus all accumulated and unpaid dividends thereon.  The
Company may redeem shares of the Series A Preferred Stock at any time at a
redemption price equal to $1,000 per share, plus a redemption premium per share
that varies based on the date of redemption.
  12.   Interest Rate
Hedges
 
 In
February 2007, the Company extended the maturity date of the Cullen Oaks Phase I
and Phase II loans to February 2014.  The extended loans bear interest
at a rate of LIBOR plus 1.35% and required payments of interest only through May
2008 and monthly payments of principal and interest from May 2008 through the
maturity date.  In connection with these loan extensions, the Company
terminated the existing interest rate swap agreement and received a termination
payment from the lender of approximately $0.4 million.  In accordance
with SFAS No. 133, the $0.4 million gain will be amortized from accumulated
other comprehensive income to earnings over the remaining term of the terminated
interest rate swap agreement (through November 2008).  As of June 30,
2008, approximately $0.3 million of the $0.4 million gain was amortized from
accumulated other comprehensive income to earnings.
 
 In
addition, the Company entered into an interest rate swap agreement effective
February 15, 2007 through February 15, 2014, that is designated to hedge its
exposure to fluctuations in interest payments attributed to changes in interest
rates associated with payments on the Cullen Oaks Phase I and Phase II
loans.  Under the terms of the interest rate swap agreement, the
Company pays a fixed rate of 6.69% and receives a floating rate of LIBOR plus
1.35%.  The interest rate swap had an estimated negative fair value of
approximately $1.9 million at June 30, 2008 and is reflected in other
liabilities in the accompanying consolidated balance
sheets.  Ineffectiveness resulting from the Company’s hedges is not
material.
 
 13.  Fair
Value Disclosures
 
 On
January 1, 2008, the Company adopted SFAS No. 157, which defines fair value,
establishes a framework for measuring fair value and also expands disclosures
about fair value measurements.  SFAS No. 157 applies to reported
balances that are required or permitted to be measured at fair value under
existing accounting pronouncements; accordingly, the standard does not require
any new fair value measurements of reported balances.  The following
table presents information about our liability measured at fair value on a
recurring basis as of June 30, 2008, and indicates the fair value hierarchy of
the valuation techniques utilized by us to determine such fair
value.  The Company completed the acquisition of GMH on June 11, 2008
and the acquired properties are included in the wholly-owned properties, net
balance as of June 30, 2008.  The Company’s allocation of purchase
price for GMH is contingent upon the receipt of final third-party appraisals and
additional analyses necessary to finalize the allocation.
 
 16
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 In
general, fair values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or liabilities the Company
has the ability to access.  Fair values determined by Level 2 inputs
utilize inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly.  Level 2
inputs include quoted prices for similar assets and liabilities in active
markets and inputs other than quoted prices observable for the asset or
liability, such as interest rates and yield curves observable at commonly quoted
intervals.  Level 3 inputs are unobservable inputs for the asset or
liability, and include situations where there is little, if any, market activity
for the asset or liability.  In instances in which the inputs used to
measure fair value may fall into different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the fair value measurement in
its entirety has been determined is based on the lowest level input significant
to the fair value measurement in its entirety.  The Company’s
assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to
the asset or liability.  Disclosures concerning assets and liabilities
measured at fair value are as follows:
 
 Liability
Measured at Fair Value on a Recurring Basis at June 30, 2008
 
 Quoted
      Prices in
                  Active
      Markets for
                  Identical
      Assets
                  and
      Liabilities
                  (Level
      1)
                
                
                Significant
      Other
                  Observable
      Inputs
                  (Level
      2)
                
                
                Significant
                  Unobservable
                  Inputs
      (Level 3)
                
                
                Balance
      at June 30,
                  2008Liability:Derivative
      financial instrument
                
                $
                -
                
                
                $
                1,906
                
                
                $
                -
                
                
                $
                1,906
 
 The
Company uses derivative financial instruments, specifically interest rate swaps,
for nontrading purposes.  The Company uses interest rate swaps to
manage interest rate risk arising from previously unhedged interest payments
associated with variable rate debt.  Through June 30, 2008, derivative
financial instruments were designated and qualified as cash flow
hedges.  Derivative contracts with positive net fair values inclusive
of net accrued interest receipts or payments, are recorded in other
assets.  Derivative contracts with negative net fair values, inclusive
of net accrued interest payments or receipts, are recorded in other
liabilities.  The valuation of these instruments is determined using
widely accepted valuation techniques including discounted cash flow analysis on
the expected cash flows of each derivative.  This analysis reflects
the contractual terms of the derivatives, including the period to maturity, and
uses observable market-based inputs, including interest rate
curves.  The fair values of interest rate swaps are determined using
the market standard methodology of netting the discounted future fixed cash
receipts (or payments) and the discounted expected variable cash payments (or
receipts). The variable cash payments (or receipts) are based on an expectation
of future interest rates (forward curves) derived from observable market
interest rate curves.
 
 To comply
with the provisions of SFAS No. 157, the Company incorporates credit valuation
adjustments to appropriately reflect its own nonperformance risk and the
respective counterparty’s nonperformance risk in the fair value
measurements.  In adjusting the fair value of its derivative contracts
for the effect of nonperformance risk, the Company has considered the impact of
netting and any applicable credit enhancements, such as collateral postings,
thresholds and guarantees.
 
 Although
the Company has determined the majority of the inputs used to value its
derivative fall within Level 2 of the fair value hierarchy, the credit valuation
adjustment associated with its derivative utilizes Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood of default by the
Company and its counterparty.  However, as of June 30, 2008, the
Company has assessed the significance of the impact of the credit valuation
adjustment on the overall valuation of its derivative position and has
determined that the credit valuation adjustment is not significant to the
overall valuation of the Company’s derivative.  As a result, the
Company has determined its derivative valuation in its entirety is classified in
Level 2 of the fair value hierarchy.
 
 14. 
Commitments and Contingencies
 
 Commitments
 
 Development-related
guarantees:The
Company commonly provides alternate housing and project cost guarantees, subject
to force majeure.  These guarantees are typically limited, on an
aggregate basis, to the amount of the projects’ related development fees or a
contractually agreed-upon maximum exposure amount.  Alternate housing
guarantees typically expire five days after construction is complete and
generally require the Company to provide substitute living quarters and
transportation for students to and from the university if the project is not
complete by an agreed-upon completion date.  Under project cost
guarantees, the Company is responsible for the construction cost of a project in
excess of an approved budget.   The budget consists primarily of
costs included in the general contractors’ guaranteed maximum price contract
(“GMP”).  In most cases, the GMP obligates the general contractor,
subject to force majeure and approved change orders, to provide completion date
guarantees and to cover cost overruns and liquidated damages.  In
addition, the GMP is typically secured with payment and performance
bonds.  Project cost guarantees expire upon completion of certain
developer obligations, which are normally satisfied within one year after
completion of the project.
 
 17
 
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 On one
completed project, the Company has guaranteed losses up to $3.0 million in
excess of the development fee if the loss is due to any failure of the Company
to maintain, or cause its professionals to maintain, required insurance for a
period of five years after completion of the project (August 2009).
 The
Company’s estimated maximum exposure amount under the above guarantees is
approximately $12.2 million
 
 At June
30, 2008, management did not anticipate any material deviations from schedule or
budget related to third-party development projects currently in progress. 
The Company has estimated the fair value of guarantees entered into or modified
after December 31, 2002, the effective date of FASB Interpretation No. 45, Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, to be immaterial.
 
 In the
normal course of business, the Company enters into various development-related
purchase commitments with parties that provide development-related goods and
services.  In the event that the Company was to terminate development
services prior to the completion of projects under construction, the Company
could potentially be committed to satisfy outstanding purchase orders with such
parties.
 
 Guaranty of Joint Venture Mortgage
Debt:As discussed in Note 8 herein, the Company holds a 10% equity
interest in two unconsolidated joint ventures with mortgage debt outstanding of
approximately $342.3 million as of June 30, 2008.  The Company serves
as the guarantor of this debt which means it agrees to be liable to the lender
for any loss, damage, cost, expense, liability, claim or other obligation
incurred by the lender arising out of or in connection with fraud by the
borrower in connection with the loan.
  Contingencies
 
 Litigation:In the
normal course of business, the Company is subject to claims, lawsuits, and legal
proceedings. While it is not possible to ascertain the ultimate outcome of such
matters, management believes that the aggregate amount of such liabilities, if
any, in excess of amounts provided or covered by insurance, will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
 
 Letters of
Intent:  In the ordinary course of the Company’s business, the
Company enters into letters of intent indicating a willingness to negotiate
for acquisitions, dispositions or joint ventures.  Such letters of
intent are non-binding, and neither party to the letter of intent is obligated
to pursue negotiations unless and until a definitive contract is entered into by
the parties.  Even if definitive contracts are entered into, the
letters of intent relating to the acquisition and disposition of real property
and resulting contracts generally contemplate that such contracts will provide
the acquirer with time to evaluate the property and conduct due diligence,
during which periods the acquiror will have the ability to terminate the
contracts without penalty or forfeiture of any deposit or earnest
money.  There can be no assurance that definitive contracts will be
entered into with respect to any matter covered by letters of intent or that the
Company will consummate any transaction contemplated by any definitive
contract.  Furthermore, due diligence periods for real property are
frequently extended as needed.  An acquisition or disposition of real
property becomes probable at the time that the due diligence period expires and
the definitive contract has not been terminated.  The Company is then
at risk under a real property acquisition contract, but only to the extent of
any earnest money deposits associated with the contract, and is obligated to
sell under a real property sales contract.
  Environmental
Matters:The Company is not aware of any environmental
liability with respect to the properties that would have a material adverse
effect on the Company's business, assets or results of operations. However,
there can be no assurance that such a material environmental liability does not
exist. The existence of any such material environmental liability could have an
adverse effect on the Company's results of operations and cash
flows.
 
 15.  Segments
 
 The
Company defines business segments by their distinct customer base and service
provided.  The Company has identified four reportable segments:
Wholly-Owned Properties, On-Campus Participating Properties, Development
Services and Property Management Services.  Management evaluates each
segment’s performance based on operating income before depreciation,
amortization, minority interests and allocation of corporate
overhead.  Intercompany fees are reflected at the contractually
stipulated amounts.
 
 18
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Wholly-Owned
      PropertiesRental
      revenues
                
                $
                37,655
                
                
                $
                28,330
                
                
                $
                69,774
                
                
                $
                55,816Interest
      income
                
                
                8
                
                
                
                100
                
                
                
                73
                
                
                
                171Total
      revenues from external customers
                
                
                37,663
                
                
                
                28,430
                
                
                
                69,847
                
                
                
                55,987Operating
      expenses before depreciation and amortization
                
                
                16,533
                
                
                
                12,951
                
                
                
                30,207
                
                
                
                24,717Interest
      expense
                
                
                7,880
                
                
                
                6,092
                
                
                
                13,948
                
                
                
                11,556Operating
      income before depreciation and amortization,
                  minority
      interests and allocation of corporate overhead
                
                $
                13,250
                
                
                $
                9,387
                
                
                $
                25,692
                
                
                $
                19,714Depreciation
      and amortization
                
                $
                9,894
                
                
                $
                6,549
                
                
                $
                16,695
                
                
                $
                12,386Capital
      expenditures
                
                $
                31,670
                
                
                $
                26,847
                
                
                $
                69,990
                
                
                $
                43,960Total
      segment assets at June 30,
                
                $
                1,915,732
                
                
                $
                892,365
                
                
                $
                1,915,732
                
                
                $
                892,365On-Campus
      Participating PropertiesRental
      revenues
                
                $
                3,948
                
                
                $
                3,740
                
                
                $
                10,692
                
                
                $
                10,077Interest
      income
                
                
                53
                
                
                
                91
                
                
                
                132
                
                
                
                169Total
      revenues from external customers
                
                
                4,001
                
                
                
                3,831
                
                
                
                10,824
                
                
                
                10,246Operating
      expenses before depreciation, amortization, and
                  ground/facility
      leases
                
                
                2,337
                
                
                
                2,343
                
                
                
                4,442
                
                
                
                4,209Ground/facility
      leases
                
                
                368
                
                
                
                495
                
                
                
                727
                
                
                
                790Interest
      expense
                
                
                1,531
                
                
                
                1,562
                
                
                
                3,093
                
                
                
                3,135Operating
      (loss) income before depreciation and amortization,
                  minority
      interests and allocation of corporate overhead
                
                $
                (235
                )
                
                $
                (569
                )
                
                $
                2,562
                
                
                $
                2,112Depreciation
      and amortization
                
                $
                1,074
                
                
                $
                1,065
                
                
                $
                2,143
                
                
                $
                2,126Capital
      expenditures
                
                $
                144
                
                
                $
                162
                
                
                $
                196
                
                
                $
                227Total
      segment assets at June 30,
                
                $
                84,472
                
                
                $
                87,730
                
                
                $
                84,472
                
                
                $
                87,730Development
      ServicesDevelopment
      and construction management fees
                
                $
                723
                
                
                $
                646
                
                
                $
                2,379
                
                
                $
                1,051Operating
      expenses
                
                
                2,297
                
                
                
                1,222
                
                
                
                4,445
                
                
                
                2,435Operating
      (loss) income before depreciation and amortization,
                  minority
      interests and allocation of corporate overhead
                
                $
                (1,574
                )
                
                $
                (576
                )
                
                $
                (2,066
                )
                
                $
                (1,384
                )Total
      segment assets at June 30,
                
                $
                8,898
                
                
                $
                1,793
                
                
                $
                8,898
                
                
                $
                1,793Property
      Management ServicesProperty
      management fees from external customers
                
                $
                1,222
                
                
                $
                650
                
                
                $
                2,144
                
                
                $
                1,372Intersegment
      revenues
                
                
                1,360
                
                
                
                983
                
                
                
                2,585
                
                
                
                2,041Total
      revenues
                
                
                2,582
                
                
                
                1,633
                
                
                
                4,729
                
                
                
                3,413Operating
      expenses
                
                
                1,106
                
                
                
                676
                
                
                
                2,021
                
                
                
                1,370Operating
      income before depreciation and amortization,
                  minority
      interests and allocation of corporate overhead
                
                $
                1,476
                
                
                $
                957
                
                
                $
                2,708
                
                
                $
                2,043Total
      segment assets at June 30,
                
                $
                2,193
                
                
                $
                1,574
                
                
                $
                2,193
                
                
                $
                1,574ReconciliationsTotal
      segment revenues
                
                $
                44,969
                
                
                $
                34,540
                
                
                $
                87,779
                
                
                $
                70,697Unallocated
      interest income earned on corporate cash
                
                
                581
                
                
                
                123
                
                
                
                599
                
                
                
                681Elimination
      of intersegment revenues
                
                
                (1,360
                )
                
                
                (983
                )
                
                
                (2,585
                )
                
                
                (2,041
                )Total
      consolidated revenues, including interest income
                
                $
                44,190
                
                
                $
                33,680
                
                
                $
                85,793
                
                
                $
                69,337Segment
      operating income before depreciation, amortization,
                  minority
      interests and allocation of corporate overhead
                
                $
                12,917
                
                
                $
                9,199
                
                
                $
                28,896
                
                
                $
                22,485Depreciation
      and amortization, including amortization of
                  deferred
      financing costs
                
                
                (11,562
                )
                
                
                (8,082
                )
                
                
                (19,902
                )
                
                
                (15,350
                )Net
      unallocated expenses relating to corporate overhead
                
                
                (2,630
                )
                
                
                (1,816
                )
                
                
                (4,766
                )
                
                
                (12,710
                )Loss
      from unconsolidated joint ventures
                
                
                (129
                )
                
                
                -
                
                
                
                (255
                )Income
      tax provision
                
                
                (73
                )
                
                
                (60
                )
                
                
                (133
                )
                
                
                (120
                )Minority
      interests
                
                
                (65
                )
                
                
                (26
                )
                
                
                (473
                )
                
                
                232(Loss)
      income from continuing operations
                
                $
                (1,542
                )
                
                $
                (785
                )
                
                $
                3,367
                
                
                $
                (5,463
                )Total
      segment assets at June 30,
                
                $
                2,011,295
                
                
                $
                983,462
                
                
                $
                2,011,295
                
                
                $
                983,462Unallocated
      corporate assets and assets held for sale
                
                
                227,750
                
                
                
                5,722
                
                
                
                227,750
                
                
                
                5,722Total
      assets at June 30,
                
                $
                2,239,045
                
                
                $
                989,184
                
                
                $
                2,239,045
                
                
                $
                989,184
  19
 AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 16.  Subsequent
Events
 
 Property
Dispositions:In July 2008, the Company sold a wholly-owned
property, The Courtyards, for a purchase price of $17.4 million and had mortgage
loan debt with a fair market value of $16.6 million as of June 30,
2008.  In August 2008, the Company sold another wholly-owned property,
The Verge, for a purchase price of $36.4 million and had mortgage loan debt with
a fair market value of $30.8 million as of June 30, 2008.  The
Courtyards and The Verge were acquired on June 11, 2008 in connection with the
acquisition of GMH, were under contract to be sold on the closing date, and were
classified as wholly-owned
properties-held for sale as of June 30, 2008.  No gain or loss was
recorded on these dispositions for book purposes.
  20
  Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations
 
 Forward-looking
Statements
 
 This
report contains forward-looking statements within the meaning of the federal
securities laws. We caution investors that any forward-looking statements
presented in this report, or which management may make orally or in writing from
time to time, are based on management’s beliefs and assumptions made by, and
information currently available to, management. When used, the words
“anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,”
“project,” “should,” “will,” “result” and similar expressions, which do not
relate solely to historical matters, are intended to identify forward-looking
statements. Such statements are subject to risks, uncertainties and assumptions
and may be affected by known and unknown risks, trends, uncertainties and
factors that are beyond our control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. We caution you that while forward-looking statements reflect our good
faith beliefs when we make them, they are not guarantees of future performance
and are impacted by actual events when they occur after we make such statements.
We expressly disclaim any responsibility to update forward-looking statements,
whether as a result of new information, future events or otherwise. Accordingly,
investors should use caution in relying on past forward-looking statements,
which are based on results and trends at the time they were made, to anticipate
future results or trends.
 
 Some of
the risks and uncertainties that may cause our actual results, performance or
achievements to differ materially from those expressed or implied by
forward-looking statements include, among others, the following: general risks
affecting the real estate industry (including, without limitation, the inability
to enter into or renew leases, dependence on tenants’ financial condition, and
competition from other developers, owners and operators of real estate); risks
associated with changes in University admission or housing policies; risks
associated with the availability and terms of financing and the use of debt to
fund acquisitions and developments; failure to manage effectively our growth and
expansion into new markets or to integrate acquisitions successfully; risks and
uncertainties affecting property development and construction (including,
without limitation, construction delays, cost overruns, inability to obtain
necessary permits and public opposition to such activities); risks associated
with downturns in the national and local economies, increases in interest rates,
and volatility in the securities markets; costs of compliance with the Americans
with Disabilities Act and other similar laws; potential liability for uninsured
losses and environmental contamination; risks associated with our potential
failure to qualify as a REIT under the Internal Revenue Code of 1986 (the
“Code”), as amended, and possible adverse changes in tax and environmental laws;
and risks associated with our dependence on key personnel whose continued
service is not guaranteed.
 
 The risks
included here are not exhaustive, and additional factors could adversely affect
our business and financial performance, including factors and risks included in
other sections of this report. Moreover, we operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it
is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
 
 Our
Company and Our Business
 
 American
Campus Communities, Inc. (referred to herein as “the Company,” “us,” “we,” and
“our”) is a real estate investment trust (“REIT”) that was incorporated on March
9, 2004 and commenced operations effective with the completion of our initial
public offering (“IPO”) on August 17, 2004.  Through our controlling
interest in American Campus Communities Operating Partnership LP (the “Operating
Partnership”), we are one of the largest owners, managers and developers of high
quality student housing properties in the United States in terms of beds owned
and under management.  We are a fully integrated, self-managed and
self-administered equity REIT with expertise in the acquisition, design,
financing, development, construction management, leasing and management of
student housing properties.
 
 On April
23, 2008, we completed an equity offering, consisting of the sale of 9,200,000
shares of our common stock at a price of $28.75 per share, including the
exercise of 1,200,000 shares issued as a result of the exercise of the
underwriters’ overallotment option in full at closing.  The offering
generated gross proceeds of $264.5 million.  The aggregate proceeds,
net of the underwriting discount, structuring fee and expenses of the offering,
were approximately $252.1 million.
 
 As of
June 30, 2008, our property portfolio contained 88 student housing properties
with approximately 54,300 beds and approximately 18,200 apartment units, including
42 properties containing approximately 25,000 beds and approximately 8,400 units
added as a result of our acquisition of the student housing business of
GMH.  Our property portfolio consisted of 82 owned off-campus
properties that are in close proximity to colleges and universities, two ACE
properties currently under development that will be operated under
ground/facility leases with a related university system and four on-campus
participating properties operated under ground/facility leases with the related
university systems.  As of June 30, 2008, we also owned a minority
interest in joint ventures that owned an aggregate of 21 student housing
properties with approximately 12,100 beds in approximately 3,600
units.  Our communities contain modern housing units, offer
resort-style amenities and are supported by a resident assistant system and
other student-oriented programming.
 
 21
 Through
our TRS entities, we also provide construction management and development
services, primarily for student housing properties owned by colleges and
universities, charitable foundations, and others.  As of June 30,
2008, we provided third-party management and leasing services for 36 properties
(six of which we served as the third-party developer and construction manager)
that represented approximately 25,700 beds in approximately 9,200
units.  Third-party management and leasing services are typically
provided pursuant to multi-year management contracts that have initial terms
that range from one to five years.  As of June 30, 2008, our total
owned, joint venture and third-party managed portfolio included 145 properties
with approximately 92,100 beds in approximately 31,000 units.
 
 Third-Party
Development Services
 
 Our
third-party development and construction management services as of June 30, 2008
consisted of five projects under contract and currently in progress with fees
ranging from $0.2 million to $3.5 million.  As of June 30, 2008, fees
of approximately $2.5 million remained to be earned by us with respect to these
projects, which have scheduled completion dates of July 2008 through March
2010.
 
 While we
believe that our third party development/construction management and property
management services allow us to develop strong and key relationships with
colleges and universities, revenue from this area has over time become a smaller
portion of our operations due to the continued focus on and growth of our
wholly-owned property portfolio.  Nevertheless, we believe these
services continue to provide synergies with respect to our ability to identify,
acquire or develop, and successfully operate, student housing
properties.
 
 Acquisitions
 
 On June
11, 2008, we completed the acquisition of GMH.  At the time of
closing, the GMH student housing portfolio consisted of 42 wholly-owned
properties containing 24,953 beds located in various markets throughout the
country.  Two of the acquired properties were sold subsequent to the
end of the quarter.  See Note 16 in the accompanying Notes to
Consolidated Financial Statements for additional information on the property
dispositions.  The total estimated purchase price of GMH was
approximately $1.1 billion which was paid as follows: (i) the issuance of
approximately $154.9 million of our common stock and Common Units valued at
$28.43 per share; (ii) cash consideration paid of approximately $239.6 million
which represented the payment of $3.36 per share for each share of GMH common
stock and each unit in the GMH Operating Partnership issued and outstanding as
of the date of the Merger Agreement (February 11, 2008); (iii) the assumption of
$598.8 million of fixed-rate mortgage debt, which includes a net debt discount
of $9.4 million; and (iv) $52.7 million of merger costs incurred as it relates
to severance payments, legal, banking, accounting and finance
costs.
 
 In
February 2008, we acquired a 144-unit, 528-bed property (Pirate’s Place) located
near the campus of East Carolina University in Greenville, North Carolina, for a
purchase price of $10.6 million, which excludes $0.8 million of anticipated
transaction costs, initial integration expenses and capital expenditures
necessary to bring this property up to our operating standards.  As
part of the transaction, we assumed approximately $7.0 million in fixed-rate
mortgage debt with an annual interest rate of 7.15% and remaining term to
maturity of 14.9 years.
 
 In
February 2008, we also acquired a 68-unit, 161-bed property (Sunnyside Commons)
located near the campus of West Virginia University in Morgantown, West
Virginia, for a purchase price of $7.5 million, which excludes $0.6 million of
anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring this property up to our operating
standards.  We did not assume any debt as part of this
transaction.
 
 Owned
Development Activities
 
 Overview:  As of
June 30, 2008, we were in the process of constructing one owned off-campus
property and two ACE properties that will be operated under ground/facility
leases with a related university system.  We estimate that the total
development costs relating to these activities will be approximately $298.8
million.  As of June 30, 2008, we have incurred development costs of
approximately $177.3 million in connection with these properties, with the
remaining development costs estimated at approximately $121.5
million.  The activities are described below:
 
 22
 Villas at Chestnut Ridge: As
of June 30, 2008, our Villas at Chestnut Ridge owned off-campus property was
under construction with total development costs estimated to be approximately
$34.8 million.  The project is scheduled to complete construction and
open for occupancy in August 2008 and serve students attending State University
of New York - Buffalo.  As of June 30, 2008, the project was
approximately 98% complete, and we estimate that remaining development costs
will be approximately $6.3 million.  As of June 30, 2008, we have
funded $3.2 million of the project’s development costs internally, with the
remaining development costs to be funded through a construction
loan.
  Vista del Sol:As of June 30,
2008, our Vista del Sol ACE property was under construction with total
development costs estimated to be approximately $137.5 million.  The
project is scheduled to complete construction and open for occupancy in August
2008 and serve students attending Arizona State University.  As of
June 30, 2008, the project was approximately 93% complete, and we estimate that
remaining development costs will be approximately $21.1 million.  As
of June 30, 2008, we have funded $37.5 million of the project’s development
costs internally, with the remaining development costs to be funded through a
construction loan.
 
 Barrett Honors
College:As of June 30, 2008, our Barrett Honors College ACE
property was under construction with total development costs estimated to be
approximately $126.5 million.  The project is scheduled to complete
construction and open for occupancy in August 2009 and serve students attending
Arizona State University.  As of June 30, 2008, the project was
approximately 20% complete, and we estimate that remaining development costs
will be approximately $94.1 million.  As of June 30, 2008, we have
funded 100% of the project’s development costs and will fund the remaining
development costs internally.
  23
  Property
Operations
 As
      of June 30, 2008, our property portfolio consisted of the
      following:
 PROPERTY
                
                YR
      ACQUIRED / DEVELOPED(1)
                
                LOCATION
                
                PRIMARY
      UNIVERSITY SERVED
                
                UNITS
                
                BEDSWholly-Owned
      properties:1.
      Villas on Apache
                
                1999
                
                Tempe,
      AZ
                
                Arizona
      State University Main Campus
                
                111
                
                2882.
      The Village at Blacksburg
                
                2000
                
                Blacksburg,
      VA
                
                Virginia
      Tech University
                
                288
                
                1,0563.
      River Club Apartments
                
                1999
                
                Athens,
      GA
                
                The
      University of Georgia – Athens
                
                266
                
                7924.
      River Walk Townhomes
                
                1999
                
                Athens,
      GA
                
                The
      University of Georgia – Athens
                
                100
                
                3365.
      The Callaway House
                
                2001
                
                College
      Station, TX
                
                Texas
      A&M University
                
                173
                
                5386.
      The Village at Alafaya Club
                
                2000
                
                Orlando,
      FL
                
                The
      University of Central Florida
                
                228
                
                8397.
      The Village at Science Drive
                
                2001
                
                Orlando,
      FL
                
                The
      University of Central Florida
                
                192
                
                7328.
      University Village at Boulder Creek
                
                2002
                
                Boulder,
      CO
                
                The
      University of Colorado at Boulder
                
                82
                
                3099.
      University Village at Fresno
                
                2004
                
                Fresno,
      CA
                
                California
      State University – Fresno
                
                105
                
                40610.
      University Village at TU
                
                2004
                
                Philadelphia,
      PA
                
                Temple
      University
                
                220
                
                74911.
      University Club Tallahassee
                
                2005
                
                Tallahassee,
      FL
                
                Florida
      State University
                
                152
                
                60812.
      The Grove at University Club
                
                2005
                
                Tallahassee,
      FL
                
                Florida
      State University
                
                64
                
                12813.
      College Club Tallahassee
                
                2005
                
                Tallahassee,
      FL
                
                Florida
      A&M University
                
                96
                
                38414.
      The Greens at College Club
                
                2005
                
                Tallahassee,
      FL
                
                Florida
      A&M University
                
                40
                
                16015.
      University Club Gainesville
                
                2005
                
                Gainesville,
      FL
                
                University
      of Florida
                
                94
                
                37616.
      City Parc at Fry Street
                
                2005
                
                Denton,
      TX
                
                University
      of North Texas
                
                136
                
                41817.
      The Estates
                
                2005
                
                Gainesville,
      FL
                
                University
      of Florida
                
                396
                
                1,04418.
      University Village at Sweet Home
                
                2005
                
                Amherst,
      NY
                
                State
      University of New York – Buffalo
                
                269
                
                82819.
      Entrada Real
                
                2006
                
                Tucson,
      AZ
                
                University
      of Arizona
                
                98
                
                36320.
      Royal Oaks
                
                2006
                
                Tallahassee,
      FL
                
                Florida
      State University
                
                82
                
                22421.
      Royal Pavilion
                
                2006
                
                Tallahassee,
      FL
                
                Florida
      State University
                
                60
                
                20422.
      Royal Village Tallahassee
                
                2006
                
                Tallahassee,
      FL
                
                Florida
      State University
                
                75
                
                28823.
      Royal Village Gainesville
                
                2006
                
                Gainesville,
      FL
                
                University
      of Florida
                
                118
                
                44824.
      Northgate Lakes
                
                2006
                
                Orlando,
      FL
                
                The
      University of Central Florida
                
                194
                
                71025.
      Royal Lexington
                
                2006
                
                Lexington,
      KY
                
                University
      of Kentucky
                
                94
                
                36426.
      The Woods at Greenland
                
                2006
                
                Murfreesboro,
      TN
                
                Middle
      Tennessee State University
                
                78
                
                27627.
      Raiders Crossing
                
                2006
                
                Murfreesboro,
      TN
                
                Middle
      Tennessee State University
                
                96
                
                27628.
      Raiders Pass
                
                2006
                
                Lubbock,
      TX
                
                Texas
      Tech University
                
                264
                
                82829.
      Aggie Station
                
                2006
                
                College
      Station, TX
                
                Texas
      A&M University
                
                156
                
                45030.
      The Outpost San Marcos
                
                2006
                
                San
      Marcos, TX
                
                Texas
      State University – San Marcos
                
                162
                
                48631.
      The Outpost San Antonio
                
                2006
                
                San
      Antonio, TX
                
                University
      of Texas – San Antonio
                
                276
                
                82832.
      Callaway Villas
                
                2006
                
                College
      Station, TX
                
                Texas
      A&M University
                
                236
                
                70433.
      Village on Sixth
                
                2007
                
                Huntington,
      WV
                
                Marshall
      University
                
                248
                
                75234.
      Newtown Crossing
                
                2007
                
                Lexington,
      KY
                
                University
      of Kentucky
                
                356
                
                94235.
      Olde Towne University Square
                
                2007
                
                Toledo,
      OH
                
                University
      of Toledo
                
                224
                
                55036.
      Peninsular Place
                
                2007
                
                Ypsilanti,
      MI
                
                Eastern
      Michigan University
                
                183
                
                47837.
      University Centre (2)
                
                2007
                
                Newark,
      NJ
                
                Rutgers
      University, NJIT, Essex CCC
                
                234
                
                83838.
      Sunnyside Commons (3)
                
                2008
                
                Morgantown,
      WV
                
                West
      Virginia University
                
                68
                
                16139.
      Pirate’s Place (3)
                
                2008
                
                Greenville,
      NC
                
                East
      Carolina University
                
                144
                
                52840.
      University Highlands (4)
                
                2008
                
                Reno,
      NV
                
                University
      of Nevada at Reno
                
                216
                
                73241.
      Jacob Heights I (4)
                
                2008
                
                Mankato,
      MN
                
                Minnesota
      State University
                
                42
                
                16242.
      Jacob Heights III (4)
                
                2008
                
                Mankato,
      MN
                
                Minnesota
      State University
                
                24
                
                96
  24
  PROPERTY
                
                YR
      ACQUIRED / DEVELOPED(1
                
                LOCATION
                
                PRIMARY
      UNIVERSITY SERVED
                
                UNITS
                
                BEDSWholly-Owned
      properties:43.
      The Summit (4)
                
                2008
                
                Mankato,
      MN
                
                Minnesota
      State University
                
                192
                
                67244.
      GrandMarc – Seven Corners (4)
                
                2008
                
                Minneapolis,
      MN
                
                University
      of Minnesota
                
                219
                
                44045.
      University Village – Sacramento (4)
                
                2008
                
                Sacramento,
      CA
                
                California
      State University – Sacramento
                
                250
                
                39446.
      The Verge (4)
      (5)
                
                2008
                
                Sacramento,
      CA
                
                California
      State University – Sacramento
                
                306
                
                79247.
      Aztec Corner (4)
                
                2008
                
                San
      Diego, CA
                
                San
      Diego State University
                
                360
                
                60648.
      University Crossing (4)
                
                2008
                
                Philadelphia,
      PA
                
                University
      of Pennsylvania / Drexel
                
                507
                
                102649.
      Campus Corner (4)
                
                2008
                
                Bloomington,
      IN
                
                Indiana
      University
                
                256
                
                80050.
      Tower at 3rd
      (4)
                
                2008
                
                Champaign,
      IL
                
                University
      of Illinois
                
                147
                
                29551.
      University Mills (4)
                
                2008
                
                Cedar
      Falls, IA
                
                University
      of Northern Iowa
                
                121
                
                48152.
      Pirates Cove (4)
                
                2008
                
                Greenville,
      NC
                
                East
      Carolina University
                
                264
                
                105653.
      University Manor (4)
                
                2008
                
                Greenville,
      NC
                
                East
      Carolina University
                
                168
                
                60054.
      Brookstone Village (4)
                
                2008
                
                Wilmington,
      NC
                
                UNC
      – Wilmington
                
                124
                
                23855.
      Campus Walk – Wilmington (4)
                
                2008
                
                Wilmington,
      NC
                
                UNC
      – Wilmington
                
                289
                
                29056.
      Riverside Estates (4)
                
                2008
                
                Cayce,
      SC
                
                University
      of South Carolina
                
                205
                
                70057.
      Cambridge at Southern (4)
                
                2008
                
                Statesboro,
      GA
                
                Georgia
      Southern University
                
                228
                
                56458.
      Campus Club – Statesboro (4)
                
                2008
                
                Statesboro,
      GA
                
                Georgia
      Southern University
                
                276
                
                98459.
      University Pines (4)
                
                2008
                
                Statesboro,
      GA
                
                Georgia
      Southern University
                
                144
                
                55260.
      Lakeside (4)
                
                2008
                
                Athens,
      GA
                
                University
      of Georgia
                
                244
                
                77661.
      The Club (4)
                
                2008
                
                Athens,
      GA
                
                University
      of Georgia
                
                120
                
                48062.
      Pegasus Connection (4)
                
                2008
                
                McKay,
      FL
                
                Central
      Florida
                
                306
                
                93063.
      University Place (4)
                
                2008
                
                Charlottesville,
      VA
                
                University
      of Virginia
                
                144
                
                52864.
      Southview (4)
                
                2008
                
                Harrisonburg,
      VA
                
                James
      Madison University
                
                240
                
                96065.
      Stonegate (4)
                
                2008
                
                Harrisonburg,
      VA
                
                James
      Madison University
                
                168
                
                67266.
      The Commons (4)
                
                2008
                
                Harrisonburg,
      VA
                
                James
      Madison University
                
                132
                
                52867.
      The Courtyards (4)
      (6)
                
                2008
                
                Lexington,
      KY
                
                University
      of Kentucky
                
                182
                
                67668.
      University Gables (4)
                
                2008
                
                Murfreesboro,
      TN
                
                Middle
      Tennessee State University
                
                168
                
                64869.
      Campus Ridge (4)
                
                2008
                
                Johnson
      City, TN
                
                East
      Tennessee State University
                
                132
                
                52870.
      The Enclave I (4)
                
                2008
                
                Bowling
      Green, OH
                
                Bowling
      Green State University
                
                120
                
                48071.
      Hawks Landing (4)
                
                2008
                
                Oxford,
      OH
                
                Miami
      University of Ohio
                
                122
                
                48472.
      Willow Tree Apartments(4)
                
                2008
                
                Ann
      Arbor, MI
                
                University
      of Michigan
                
                312
                
                56873.
      Willow Tree Towers(4)
                
                2008
                
                Ann
      Arbor, MI
                
                University
      of Michigan
                
                163
                
                28374.
      Abbott Place (4)
                
                2008
                
                East
      Lansing, MI
                
                Michigan
      State University
                
                222
                
                65475.
      University Centre – Kalamazoo (4)
                
                2008
                
                Kalamazoo,
      MI
                
                Western
      Michigan University
                
                232
                
                70076.
      University Meadows (4)
                
                2008
                
                Mt.
      Pleasant, MI
                
                Central
      Michigan University
                
                184
                
                61677.
      Campus Way (4)
                
                2008
                
                Tuscaloosa,
      AL
                
                University
      of Alabama
                
                196
                
                68478.
      Campus Walk – Oxford (4)
                
                2008
                
                Oxford,
      MS
                
                University
      of Mississippi
                
                108
                
                43279.Campus
      Trails (4)
                
                2008
                
                Starkville,
      MS
                
                Mississippi
      State University
                
                156
                
                48080.
      University Pointe (4)
                
                2008
                
                Lubbock,
      TX
                
                Texas
      Tech University
                
                204
                
                68281.
      University Trails (4)
                
                2008
                
                Lubbock,
      TX
                
                Texas
      Tech University
                
                240
                
                68482.
      Vista del Sol (7)
                
                2008
                
                Tempe,
      AZ
                
                Arizona
      State University
                
                613
                
                1,86683.
      Villas at Chestnut Ridge (7)
                
                2008
                
                Amherst,
      NY
                
                State
      University of New York – Buffalo
                
                196
                
                55284.
      Barrett Honors College (8)
                
                2009
                
                Tempe,
      AZ
                
                Arizona
      State University
                
                601
                
                1,720Total
      wholly-owned properties
                
                
                
                
                
                
                
                16,301
                
                49,780
  25
  PROPERTY
                
                YEAR
      ACQUIRED / DEVELOPED (1)
                
                LOCATION
                
                PRIMARY
      UNIVERSITY SERVED
                
                UNITS
                
                BEDSOn-campus
      participating  properties:85.
      University Village – PVAMU
                
                1996
      / 97 / 98
                
                Prairie
      View, TX
                
                Prairie
      View A&M University
                
                612
                
                1,92086.
      University College – PVAMU
                
                2000
      / 2003
                
                Prairie
      View, TX
                
                Prairie
      View A&M University
                
                756
                
                1,47087.
      University Village – TAMIU
                
                1997
                
                Laredo,
      TX
                
                Texas
      A&M International University
                
                84
                
                25088.
      Cullen Oaks – Phase I and II
                
                2001
      / 2006
                
                Houston,
      TX
                
                The
      University of Houston
                
                411
                
                879Total
      on-campus participating properties
                
                1,863
                
                4,519Total – all
      properties
                
                
                
                
                
                
                
                18,164
                
                54,299
 
 (1)
                As
      of June 30, 2008, the average age of our operating properties was
      approximately 7.3 years.
  (2)
                Construction
      was completed and property commenced operations in August
      2007.
  (3)
                Property
      was acquired in February 2008.
  (4)
                GMH
      property acquired in June 2008.
  (5)
                Property
      was sold in August 2008.
  (6)
                Property
      was sold in July 2008.
  (7)
                Currently
      under development with a scheduled completion date of August
      2008.
  (8)
                Currently
      under development with a scheduled completion date of August
      2009.
  26
 Results
of Operations
 
 Comparison
of the Three Months Ended June 30, 2008 and June 30, 2007
 
 The
following table presents our results of operations for the three months ended
June 30, 2008 and 2007, including the amount and percentage change in these
results between the two periods:
 
 Three
      Months Ended June 30,2008
                
                
                2007
                
                
                Change
      ($)
                
                
                Change
      (%)Revenues:Wholly-owned
      properties
                
                $
                37,294
                
                
                $
                28,007
                
                
                $
                9,287
                
                
                
                33.2
                %On-campus
      participating properties
                
                
                3,948
                
                
                
                3,740
                
                
                
                208
                
                
                
                5.6
                %Third
      party development services
                
                
                723
                
                
                
                646
                
                
                
                77
                
                
                
                11.9
                %Third
      party management services
                
                
                1,222
                
                
                
                650
                
                
                
                572
                
                
                
                88.0
                %Resident
      services
                
                
                361
                
                
                
                323
                
                
                
                38
                
                
                
                11.8
                %Total
      revenues
                
                
                43,548
                
                
                
                33,366
                
                
                
                10,182
                
                
                
                30.5
                %Operating
      Expenses:Wholly-owned
      properties
                
                
                16,738
                
                
                
                13,046
                
                
                
                3,692
                
                
                
                28.3
                %On-campus
      participating properties
                
                
                2,499
                
                
                
                2,499
                
                
                
                -
                
                
                
                0.0
                %Third
      party development and management services
                
                
                2,328
                
                
                
                1,147
                
                
                
                1,181
                
                
                
                103.0
                %General
      and administrative
                
                
                3,237
                
                
                
                2,190
                
                
                
                1,047
                
                
                
                47.8
                %Depreciation
      and amortization
                
                
                11,114
                
                
                
                7,768
                
                
                
                3,346
                
                
                
                43.1
                %Ground/facility
      leases
                
                
                368
                
                
                
                495
                
                
                
                (127
                )
                
                
                (25.7
                %)Total
      operating expenses
                
                
                36,284
                
                
                
                27,145
                
                
                
                9,139
                
                
                
                33.7
                %Operating
      income
                
                
                7,264
                
                
                
                6,221
                
                
                
                1,043
                
                
                
                16.8
                %Nonoperating
      income and (expenses):Interest
      income
                
                
                642
                
                
                
                314
                
                
                
                328
                
                
                
                104.5
                %Interest
      expense
                
                
                (8,733
                )
                
                
                (6,920
                )
                
                
                (1,813
                )
                
                
                26.2
                %Amortization
      of deferred financing costs
                
                
                (448
                )
                
                
                (314
                )
                
                
                (134
                )
                
                
                42.7
                %Loss
      from unconsolidated joint venture
                
                
                (129
                )
                
                
                -
                
                
                
                (129
                )
                
                
                100.0
                %Total
      nonoperating expenses
                
                
                (8,668
                )
                
                
                (6,920
                )
                
                
                (1,748
                )
                
                
                25.3
                %Loss
      before income taxes, minority interests, and
                  discontinued
      operations
                
                
                (1,404
                )
                
                
                (699
                )
                
                
                (705
                )
                
                
                100.9
                %Income
      tax provision
                
                
                (73
                )
                
                
                (60
                )
                
                
                (13
                )
                
                
                21.7
                %Minority
      interests
                
                
                (65
                )
                
                
                (26
                )
                
                
                (39
                )
                
                
                150.0
                %Loss
      from continuing operations
                
                
                (1,542
                )
                
                
                (785
                )
                
                
                (757
                )
                
                
                96.4
                %Discontinued
      operations:Income
      attributable to discontinued
                  operations
                
                
                92
                
                
                
                -
                
                
                
                92
                
                
                
                100.0
                %Net
      loss
                
                $
                (1,450
                )
                
                $
                (785
                )
                
                $
                (665
                )
                
                
                84.7
                %
 
 Wholly-Owned
Properties Operations
 
 Revenues
from our wholly-owned properties for the three months ended June 30, 2008
compared with the same period in 2007 increased by $9.3 million primarily due to
the acquisition of the GMH student housing portfolio in June 2008, the
acquisition of two properties during the first quarter 2008, and the completion
of construction and opening of University Centre in August
2007.  Operating expenses increased approximately $3.7 million for the
three months ended June 30, 2008 compared with the same period in 2007,
primarily due to the same factors which affected the increase in
revenues.
 
 New Property
Operations.  On June 11, 2008, we acquired the GMH student
housing portfolio, consisting of 42 properties containing 24,953 beds located in
various markets throughout the country.  Of the 42 properties
acquired, two were under contract to be sold on the acquisition date and are
classified as discontinued operations for the three months ended June 30,
2008.  For the period from June 11, 2008 to June 30, 2008, these 40
properties contributed an additional $6.1 million of revenues and an additional
$2.2 million of operating expenses.  In addition, we acquired two
properties in February 2008; a 528-bed property (Pirate’s Place) located near
the campus of East Carolina University in Greenville, North Carolina and a
161-bed property (Sunnyside Commons) located near the campus of West Virginia
University in Morgantown, West Virginia.  In August 2007, we completed
construction of and opened University Centre, an 838-bed property serving
students attending Rutgers University, NJIT and various surrounding educational
institutions.  These non-GMH new properties contributed an additional
$2.0 million of revenues and an additional $1.2 million of operating expenses
during the three months ended June 30, 2008 as compared to the three months
ended June 30, 2007.
 
 27
 Same Store Property Operations
(Excluding New Property Activity).  We had 36 properties
containing 19,162 beds which were operating during both the three month periods
ended June 30, 2008 and 2007.  These properties produced revenues of
$29.5 million and $28.3 million during the three months ended June 30, 2008 and
2007, respectively, an increase of $1.2 million.  This increase was
primarily due to an increase in average rental rates during the three months
ended June 30, 2008 as compared to the same period in 2007, as well as the
improved lease up for the 2007/08 academic year, which resulted in average
occupancy rates increasing to 95.1% during the three months ended June 30, 2008
from 94.4% during the three months ended June 30, 2007.  Revenues in
2008 will be dependent on our ability to maintain our current leases in effect
for the 2007/2008 academic year and our ability to obtain appropriate rental
rates and desired occupancy for the 2008/2009 academic year at our various
properties during our leasing period, which typically begins in January and ends
in August.
 
 At these
existing properties, operating expenses increased from $13.1 million for the
three months ended June 30, 2007 to $13.4 million for the three months ended
June 30, 2008, an increase of $0.3 million.  This increase was
primarily due to an increase in marketing costs of $0.3 million incurred as part
of our leasing efforts for the upcoming 2008/2009 academic year.  We
anticipate that operating expenses for our same store property portfolio for the
full year 2008 will increase slightly as compared with 2007 as a result of
expected increases in utility costs, property taxes and general
inflation.
 
 On-Campus
Participating Properties (“OCPP”) Operations
 
 Same Store OCPP
Operations.  We had four participating properties containing
4,519 beds which were operating during both the three month periods ended June
30, 2008 and 2007.  Revenues from our same store on-campus
participating properties increased to $3.9 million during the three months ended
June 30, 2008 from $3.7 million for the three months ended June 30, 2007, an
increase of $0.2 million.  This increase was primarily due to an
increase in average rental rates, offset by a decrease in average occupancy from
53.1% during the three months ended June 30, 2007 to 40.7% for the three months
ended June 30, 2008.  Occupancy at our on-campus participating
properties is typically low in the second and third quarters of each calendar
year due to the expiration of the nine-month leases at these properties
concurrent with the end of the spring semester.
 
 At these
properties, operating expenses remained relatively constant at $2.5 million for
both the three month periods ended June 30, 2008 and June 30,
2007.  We anticipate that operating expenses for the full year 2008
will increase slightly as compared with 2007 as a result of expected increases
in insurance costs, utility costs and general inflation.
 
 Third
Party Development Services Revenue
 
 Third
party development services revenue increased by $0.1 million from $0.6 million
during the three months ended June 30, 2007 to $0.7 million for the three months
ended June 30, 2008.  We had five projects in progress during the
three months ended June 30, 2008 with an average contractual fee of
approximately $2.1 million, as compared to the three months ended June 30, 2007
in which we had four projects in progress with an average contractual fee of
$1.5 million.  These increases were slightly offset by a decrease in
the percentage of construction completed during the respective
periods.  Of the total contractual fees for the projects in progress
during the respective periods, approximately 6.4% was recognized during the
three months ended June 30, 2008, compared to approximately 9.8% for the three
months ended June 30, 2007.  We anticipate third-party development
services revenue for the full year 2008 to increase due to awards in 2007 that
are expected to commence during the remainder of 2008.
 
 Development
services revenues are dependent on our ability to successfully be awarded such
projects, the amount of the contractual fee related to the project and the
timing and completion of the development and construction of the
project.  In addition, to the extent projects are completed under
budget, we may be entitled to a portion of such savings, which are recognized as
revenue when performance has been agreed upon by all parties, or when
performance has been verified by an independent third-party.  It is
possible that projects for which we have deferred pre-development costs will not
close and that we will not be reimbursed for such costs.  The
pre-development costs associated therewith will ordinarily be charged against
income for the then-current period.
 
 Third
Party Management Services Revenue
 
 Third
party management services revenues increased by $0.6 million from $0.6 million
for the three months ended June 30, 2007 to $1.2 million for the three months
ended June 30, 2008.  This increase was due to an additional $0.2
million in management fees recognized during the period of June 11, 2008 to June
30, 2008 from third party management contracts assumed as part of the GMH
acquisition, including 21 properties owned in two joint ventures with Fidelity
in which we have a 10% interest.  The remainder of the increase is
primarily the result of the commencement of four management contracts in the
fourth quarter of 2007, the commencement of one management contract in the first
quarter 2008, and the commencement of two management contracts in the second
quarter 2008.  We anticipate that third-party management services
revenues for the full year 2008 will increase as compared with 2007, primarily
as a result of the previously mentioned contracts assumed from GMH, new
contracts obtained over the last year, and new contracts anticipated to be
obtained during the remainder of 2008.
 
 28
 Third
Party Development and Management Services Expenses
 
 Third
party development and management services expenses increased by $1.2 million,
from $1.1 million during the three months ended June 30, 2007, to $2.3 million
for the three months ended June 30, 2008.  This increase was primarily
due to an increase in payroll and related costs as a result of an increase in
third-party development projects in progress and new management
contracts.  Third-party development and management services expenses
for the full year 2008 will be dependent on the level of awards we pursue, and
as previously mentioned, any pre-development costs charged against income for
projects which do not close.
 
 General
and Administrative
 
 General
and administrative expenses increased approximately $1.0 million, from $2.2
million during the three months ended June 30, 2007, to $3.2 million for the
three months ended June 30, 2008.  This increase was primarily due to
$0.4 million in direct merger costs incurred related to our acquisition of GMH
in June 2008, as well as an increase in payroll and other related costs as a
result of overall increases in corporate staffing levels due to the recent
growth in our wholly-owned property portfolio.  These increases were
offset by a $0.3 million compensation charge recorded during the three months
ended June 30, 2007 related to the Company’s 2004 Outperformance Bonus
Plan.  We anticipate general and administrative expenses to decrease
for the full year 2008 as a result of the $10.4 million Outperformance Bonus
Plan compensation charge recorded in 2007, offset by anticipated increases in
payroll and other related costs in 2008 as a result of the previously mentioned
increases in corporate staffing levels experienced as a result of the recent
growth of our wholly-owned portfolio, including our acquisition of
GMH.
 
 Depreciation
and Amortization
 
 Depreciation
and amortization increased by $3.3 million, from $7.8 million during the three
months ended June 30, 2007 to $11.1 million for the three months ended June 30,
2008.  This increase was primarily due to the acquisition of the GMH
student housing portfolio in June 2008, the acquisition of two properties during
the first quarter 2008, and the completion of construction and opening of
University Centre in August 2007.   The GMH properties
contributed an additional $3.0 million to depreciation expense for the three
months ended June 30, 2008, of which $1.2 million related to the valuation
assigned to in-place leases for such properties.  We expect
depreciation and amortization to increase for the full year 2008 as a result of
the addition of the GMH properties to our portfolio and a full year of
depreciation on properties acquired and placed in service during 2007 and
2008.
 
 Interest
Expense
 
 Interest
expense increased $1.8 million, from $6.9 million during the three months ended
June 30, 2007, to $8.7 million for the three months ended June 30,
2008.  This increase was primarily due to $598.8 million of mortgage
debt assumed at a weighted average rate of 5.43% for properties acquired from
GMH in June 2008 (including a net discount of $9.4 million to reflect the fair
market value of debt assumed.)  The debt assumed for properties
acquired from GMH contributed an additional $1.8 million of interest expense for
the period of June 11, 2008 to June 30, 2008.  We also incurred an
additional $0.2 million of interest expense related to the senior secured term
loan we entered into in May 2008 to fund a portion of the cash consideration for
our acquisition of GMH.  These increases were offset by an increase in
capitalized interest of approximately $0.3 million as a result of continued
progress on our owned development projects currently under
construction.  We anticipate that interest expense will increase for
the full year 2008 due to additional interest expense incurred in connection
with our acquisition of GMH’s student housing portfolio as well as the senior
secured term loan entered into in May 2008.
 
 29
 
 Comparison
of the Six Months Ended June 30, 2008 and June 30, 2007
 
 The
following table presents our results of operations for the six months ended June
30, 2008 and 2007, including the amount and percentage change in these results
between the two periods:
 
 Six
      Months Ended June 30,2008
                
                
                2007
                
                
                Change
      ($)
                
                
                Change
      (%)Revenues:Wholly-owned
      properties
                
                $
                68,975
                
                
                $
                55,152
                
                
                $
                13,823
                
                
                
                25.1
                %On-campus
      participating properties
                
                
                10,692
                
                
                
                10,077
                
                
                
                615
                
                
                
                6.1
                %Third
      party development services
                
                
                2,379
                
                
                
                1,051
                
                
                
                1,328
                
                
                
                126.4
                %Third
      party management services
                
                
                2,144
                
                
                
                1,372
                
                
                
                772
                
                
                
                56.3
                %Resident
      services
                
                
                799
                
                
                
                664
                
                
                
                135
                
                
                
                20.3
                %Total
      revenues
                
                
                84,989
                
                
                
                68,316
                
                
                
                16,673
                
                
                
                24.4
                %Operating
      Expenses:Wholly-owned
      properties
                
                
                30,623
                
                
                
                24,908
                
                
                
                5,715
                
                
                
                22.9
                %On-campus
      participating properties
                
                
                4,794
                
                
                
                4,525
                
                
                
                269
                
                
                
                5.9
                %Third
      party development and management services
                
                
                4,436
                
                
                
                2,441
                
                
                
                1,995
                
                
                
                81.7
                %General
      and administrative
                
                
                5,371
                
                
                
                13,518
                
                
                
                (8,147
                )
                
                
                (60.3
                %)Depreciation
      and amortization
                
                
                19,143
                
                
                
                14,738
                
                
                
                4,405
                
                
                
                29.9
                %Ground/facility
      leases
                
                
                727
                
                
                
                790
                
                
                
                (63
                )
                
                
                (8.0
                %)Total
      operating expenses
                
                
                65,094
                
                
                
                60,920
                
                
                
                4,174
                
                
                
                6.9
                %Operating
      income
                
                
                19,895
                
                
                
                7,396
                
                
                
                12,499
                
                
                
                169.0
                %Non-operating
      income and (expenses):Interest
      income
                
                
                804
                
                
                
                1,021
                
                
                
                (217
                )
                
                
                (21.3
                %)Interest
      expense
                
                
                (15,712
                )
                
                
                (13,380
                )
                
                
                (2,332
                )
                
                
                17.4
                %Amortization
      of deferred financing costs
                
                
                (759
                )
                
                
                (612
                )
                
                
                (147
                )
                
                
                24.0
                %Loss
      from unconsolidated joint ventures
                
                
                (255
                )
                
                
                -
                
                
                
                (255
                )
                
                
                100.0
                %Total
      non-operating expenses
                
                
                (15,922
                )
                
                
                (12,971
                )
                
                
                (2,951
                )
                
                
                22.8
                %Income
      (loss) before taxes, minority interests, and
                  discontinued
      operations
                
                
                3,973
                
                
                
                (5,575
                )
                
                
                9,548
                
                
                
                (171.3
                %)Income
      tax provision
                
                
                (133
                )
                
                
                (120
                )
                
                
                (13
                )
                
                
                10.8
                %Minority
      interests
                
                
                (473
                )
                
                
                232
                
                
                
                (705
                )
                
                
                (303.9
                %)Income
      (loss) from continuing operations
                
                
                3,367
                
                
                
                (5,463
                )
                
                
                8,830
                
                
                
                (161.6
                %)Discontinued
      operations:Income
      attributable to discontinued
                  operations
                
                
                92
                
                
                
                -
                
                
                
                92
                
                
                
                100.0
                %Net
      income (loss)
                
                $
                3,459
                
                
                $
                (5,463
                )
                
                $
                8,922
                
                
                
                (163.3
                %)
 
 Wholly-Owned
Properties Operations
 
 Revenues
from our wholly-owned properties for the six months ended June 30, 2008 compared
with the same period in 2007 increased by $13.9 million primarily due to the
acquisition of the GMH student housing portfolio in June 2008, the acquisition
of two properties during the first quarter 2008, the acquisition of four
properties during the first quarter 2007, and the completion of construction and
opening of University Centre in August 2007.  Operating expenses
increased approximately $5.7 million for the six months ended June 30, 2008
compared with the same period in 2007, primarily due to the same factors which
affected the increase in revenues.
 
 New Property
Operations.  On June 11, 2008, we acquired the GMH student
housing portfolio, consisting of 42 properties containing 24,953 beds located in
various markets throughout the country.  Of the 42 properties
acquired, two were under contract to be sold on the acquisition date and are
classified as discontinued operations for the six months ended June 30,
2008.  For the period from June 11, 2008 to June 30, 2008, these 40
properties contributed an additional $6.1 million of revenues and an additional
$2.2 million of operating expenses.  In addition, we acquired two
properties in February 2008; a 528-bed property (Pirate’s Place) and a 161-bed
property (Sunnyside Commons).  In January 2007, we acquired a 752-bed
property (Village on Sixth) located near the campus of Marshall University in
Huntington, West Virginia.  In addition, in February and August 2007,
we acquired a three-property portfolio consisting of 1,970 beds serving students
attending the University of Kentucky, the University of Toledo, and Eastern
Michigan University (the “Edwards Portfolio”).  Finally, in August
2007, we completed construction of and opened University
Centre.  These new properties contributed an additional $5.8 million
of revenues and an additional $3.1 million of operating expenses during the six
months ended June 30, 2008 as compared to the six months ended June 30,
2007.
 
 30
 Same Store Property Operations
(Excluding New Property Activity).  We had 32 properties
containing 16,440 beds which were operating during both the six month periods
ended June 30, 2008 and 2007.  These properties produced revenues of
$52.0 million and $50.0 million during the six months ended June 30, 2008 and
2007, respectively, an increase of $2.0 million.  This increase was
primarily due to an increase in average rental rates during the six months ended
June 30, 2008 as compared to the same period in 2007, as well as the improved
lease up for the 2007/08 academic year, which resulted in average occupancy
rates increasing to 97.2% during the six months ended June 30, 2008 from 96.1%
during the six months ended June 30, 2007.
 
 On-Campus
Participating Properties (“OCPP”) Operations
 
 Same Store OCPP
Operations.  We had four participating properties containing
4,519 beds which were operating during both the six month periods ended June 30,
2008 and 2007.  Revenues from our same store on-campus participating
properties increased to $10.7 million during the six months ended June 30, 2008
from $10.1 million for the six months ended June 30, 2007, an increase of $0.6
million.  This increase was primarily due to an increase in average
rental rates, offset by a decrease in average occupancy from 73.2% during the
six months ended June 30, 2007 to 67.6% for the six months ended June 30,
2008.  Occupancy at our on-campus participating properties is
typically low in the second and third quarters of each calendar year due to the
expiration of the nine-month leases at these properties concurrent with the end
of the spring semester.
 
 At these
properties, operating expenses increased from $4.5 million for the six months
ended June 30, 2007 to $4.8 million for the six months ended June 30, 2008, an
increase of $0.3 million.  This increase was primarily due to an
increase in utilities expenses related to electricity costs.
 
 Third
Party Development Services Revenue
 
 Third
party development services revenue increased by $1.3 million from $1.1 million
during the six months ended June 30, 2007 to $2.4 million for the six months
ended June 30, 2008.  We had five projects in progress during the six
months ended June 30, 2008 with an average contractual fee of approximately $2.1
million, as compared to the six months ended June 30, 2007 in which we had four
projects in progress with an average contractual fee of $1.5
million.  Also, due to differences in the percentage of construction
completed during the periods, approximately 21.5% of the total contractual fees
was recognized during the six months ended June 30, 2008, compared to
approximately 15.8% for the six months ended June 30, 2007.
 
 Third
Party Management Services Revenue
 
 Third
party management services revenues increased by $0.7 million from $1.4 million
for the six months ended June 30, 2007 to $2.1 million for the six months ended
June 30, 2008.  This increase was due to an additional $0.2 million in
management fees recognized during the period of June 11, 2008 to June 30, 2008
from third party management contracts assumed as part of the GMH acquisition,
including 21 properties owned in two joint ventures with Fidelity in which we
have a 10% interest.  The remainder of the increase is primarily the
result of the commencement of four management contracts in the fourth quarter of
2007, the commencement of one management contract in the first quarter 2008, and
the commencement of two management contracts in the second quarter
2008.
 
 Third
Party Development and Management Services Expenses
 
 Third
party development and management services expenses increased by $2.0 million,
from $2.4 million during the six months ended June 30, 2007, to $4.4 million for
the six months ended June 30, 2008.  This increase was primarily due
to an increase in payroll and related costs as a result of an increase in
third-party development projects in progress and new management
contracts.
 
 General
and Administrative
 
 General
and administrative expenses decreased approximately $8.1 million, from $13.5
million during the six months ended June 30, 2007, to $5.4 million for the six
months ended June 30, 2008.  This decrease was primarily due to a $9.9
million compensation charge recorded during the six months ended June 30, 2007
related to the Company’s 2004 Outperformance Bonus Plan.  This
decrease was offset by an additional $0.6 million in direct merger costs
incurred during the six months ended June 30, 2008 related to our acquisition of
GMH, as well as an increase in payroll and other related costs as a result of
overall increases in corporate staffing levels due to the recent growth in our
wholly-owned property portfolio.
 
 31
 
 Depreciation
and Amortization
 
 Depreciation
and amortization increased by $4.4 million, from $14.7 million during the six
months ended June 30, 2007 to $19.1 million for the six months ended June 30,
2008.  This increase was primarily due to the acquisition of the GMH
student housing portfolio in June 2008, the acquisition of two properties during
the first quarter 2008, and the completion of construction and opening of
University Centre in August 2007.   The GMH properties
contributed an additional $3.0 million of depreciation expense for the period of
June 11, 2008 to June 30, 2008, of which $1.2 million related to the valuation
assigned to in-place leases for such properties.
 
 Interest
Expense
 
 Interest
expense increased $2.3 million, from $13.4 million during the six months ended
June 30, 2007, to $15.7 million for the six months ended June 30,
2008.  This increase was primarily due to $598.8 million of additional
mortgage debt assumed at a weighted average rate of 5.43% for properties
acquired from GMH in June 2008 (including a net discount of $9.4 million to
reflect the fair market value of debt assumed.)  The debt assumed for
properties acquired from GMH contributed an additional $1.8 million of interest
expense for the period of June 11, 2008 to June 30, 2008.  In
addition, debt assumed for the four properties acquired in the first quarter
2007 added $0.6 million of interest expense for the six months ended June 30,
2008 as compared to the same period in 2007.  We also incurred an
additional $0.2 million of interest expense related to the senior secured term
loan we entered into in May 2008 to fund a portion of the cash consideration for
our acquisition of GMH.  These increases were offset by an increase in
capitalized interest of approximately $0.6 million as a result of continued
progress on our owned development projects currently under
construction.
 
 Minority
Interests
 
 The
variance in minority interests is primarily due to the Company being in a net
income position for the six months ended June 30, 2008 as compared to a net loss
position for the six months ended June 30, 2007.  Minority interests
represent external partners in our Operating Partnership as well as certain
third-party partners in joint ventures consolidated by us for financial
reporting purposes.  Accordingly, these external partners are
allocated their share of income/loss during the respective reporting
periods.  See Note 7 in the accompanying Notes to Consolidated
Financial Statements contained in Item 1 herein for a detailed discussion of
minority interests.
 
 Cash
Flows
 
 Comparison
of Six Months Ended June 30, 2008 and June 30, 2007
 
 Operating
Activities
 
 For the
six months ended June 30, 2008, net cash provided by operating activities was
approximately $11.6 million, as compared to $9.6 million for the six months
ended June 30, 2007, an increase of $2.0 million.
 
 Investing
Activities
 
 Investing
activities utilized $372.8 million and $82.9 million for the six months ended
June 30, 2008 and 2007, respectively.  The increase in cash utilized
in investing activities during the six months ended June 30, 2008 related
primarily to a $252.1 million increase in the use of cash to acquire properties
and land.  We acquired four properties during the six months ended
June 30, 2007 as compared to a total of 44 properties acquired during the first
six months of 2008.  In June 2008, we used approximately $276.0
million of cash to acquire the GMH student housing portfolio consisting of 42
properties containing 24,953 beds located in various markets throughout the
country.  In addition we acquired two properties during the first
quarter of 2008.  We also experienced an increase in cash used to fund
the construction of our wholly owned development properties.  Three
wholly-owned properties were under development throughout the first six months
of 2008, while two wholly-owned properties were under development throughout the
first six months of 2007 and another property began development toward the end
of the first quarter of 2007, one of which was completed in Fall
2007.  Finally, in connection with the acquisition of GMH, we entered
into a joint venture, pursuant to which 15 GMH properties were contributed to
the joint venture in exchange for cash and a 10% minority interest in the joint
venture. For the six months ended June 30, 2008 and 2007, our cash utilized in
investing activities was comprised of the following:
 
 32
  Six
      Months Ended June 30,2008
                
                
                2007Property
      and land acquisitions
                
                $
                (290,262
                )
                
                $
                (38,161
                )Investments
      in unconsolidated joint ventures
                
                
                (8,208
                )
                
                
                -Capital
      expenditures for on-campus participating properties
                
                
                (196
                )
                
                
                (227
                )Capital
      expenditures for wholly-owned properties
                
                
                (2,069
                )
                
                
                (2,457
                )Investment
      in wholly-owned properties under development
                
                
                (70,938
                )
                
                
                (41,503
                )Purchase
      of corporate furniture, fixtures, and equipment
                
                
                (1,141
                )
                
                
                (516
                )Distributions
      received from unconsolidated joint venture
                
                
                15
                
                
                
                -Total
                
                $
                (372,799
                )
                
                $
                (82,864
                )
 
 Financing
Activities
 
 Cash
provided by financing activities totaled $412.6 million for the six months ended
June 30, 2008 as compared to $3.1 million of cash provided by financing
activities during the six months ended June 30, 2007.  The increase in
cash provided by financing activities was a result of the following: (i) the
April 2008 equity offering which raised $252.2 million, net of offering costs;
(ii) the $100 million senior secured term loan which was fully funded on June
11, 2008 which proceeds were used to pay a portion of the cash consideration for
the acquisition of GMH; (iii) the contribution of 15 GMH student housing
properties to a joint venture in which we received $74.4 million in proceeds and
retained a 10% equity interest in the joint venture; and (iv) the $37.7 million
increase in proceeds from construction loans used to fund the construction of
Vista del Sol, an owned ACE development property and Villas at Chestnut Ridge,
an owned off-campus development property, which are both scheduled to open for
occupancy in August 2008.  These increases were offset by the
following: (i) the pay-off of $24.2 million in mortgage loan debt assumed in
connection with the acquisition of GMH; (ii) an $18.7 million decrease in
proceeds (net of paydowns) received from our revolving credit facility as we
used $40.7 million of our April 2008 equity offering proceeds to paydown the
revolving credit facility; (iii) a $6.2 million increase in distributions to
common and restricted stockholders as a result of our October 2007 and April
2008 equity offerings; and (iv) a $4.1 million increase in debt issuance and
assumption costs associated with mortgage debt assumed from the acquisition of
properties and fees paid to obtain the secured term loan in May
2008.
 
 Structure
of On-campus Participating Properties
 
 At our
on-campus participating properties, the subject universities own both the land
and improvements.  We then have a leasehold interest under a
ground/facility lease.  Under the lease, we receive an annual
distribution representing 50% of these properties’ net cash available for
distribution after payment of operating expenses (which includes our management
fees), debt service (which includes repayment of principal) and capital
expenditures.  We also manage these properties under multi-year
management agreements and are paid a management fee representing 5% of
receipts.
 
 We do not
have access to the cash flows and working capital of these participating
properties except for the annual net cash distribution as described
above.  Additionally, a substantial portion of these properties’ cash
flow is dedicated to capital reserves required under the applicable property
indebtedness and to the amortization of such indebtedness.  These
amounts do not increase our economic interest in these properties since our
interest, including our right to share in the net cash available for
distribution from the properties, terminates upon the amortization of their
indebtedness.  Our economic interest in these properties is therefore
limited to our interest in the net cash flow and management and development fees
from these properties, as reflected in our calculation of Funds from Operations
modified for the operational performance of on-campus participating properties
(“FFOM”) contained herein.  Accordingly, when considering these
properties’ contribution to our operations, we focus upon our share of these
properties’ net cash available for distribution and the management fees that we
receive from these properties, rather than upon their contribution to our gross
revenues and expenses for financial reporting purposes.
  33
  The
following table reflects the amounts included in our consolidated financial
statements for the three and six months ended June 30, 2008 and
2007:
 
 Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenues
                
                $
                3,948
                
                
                $
                3,740
                
                
                $
                10,692
                
                
                $
                10,077Direct
      operating expenses (1)
                
                
                (2,337
                )
                
                
                (2,343
                )
                
                
                (4,442
                )
                
                
                (4,209
                )Amortization
                
                
                (1,074
                )
                
                
                (1,065
                )
                
                
                (2,143
                )
                
                
                (2,126
                )Amortization
      of deferred financing costs
                
                
                (47
                )
                
                
                (50
                )
                
                
                (93
                )
                
                
                (93
                )Ground/facility
      leases (2)
                
                
                (368
                )
                
                
                (495
                )
                
                
                (727
                )
                
                
                (790
                )Net
      operating income (loss)
                
                
                122
                
                
                
                (213
                )
                
                
                3,287
                
                
                
                2,859Interest
      income
                
                
                53
                
                
                
                91
                
                
                
                132
                
                
                
                169Interest
      expense (3)
                
                
                (1,531
                )
                
                
                (1,561
                )
                
                
                (3,093
                )
                
                
                (3,134
                )Net
      (loss) income
                
                $
                (1,356
                )
                
                $
                (1,683
                )
                
                $
                326
                
                
                $
                (106
                )
  (1)
                Excludes
      property management fees of $0.2 million for both the three month periods
      ended June 30, 2008 and 2007, respectively, and $0.5 million for both the
      six month periods ended June 30, 2008 and 2007,
      respectively.  This expense and the corresponding fee revenue
      have been eliminated in consolidation.  Also excludes allocation
      of expenses related to corporate management and
  oversight.
  (2)
                Represents
      the universities’ 50% share of the properties’ net cash available for
      distribution after payment of operating expenses, debt service (including
      payment of principal) and capital
expenditures.
  (3)
                Debt
      service expenditures for these properties totaled $2.1 million for both
      the three month periods ended June 30, 2008 and 2007, and $4.1 million and
      $4.3 million for the six months ended June 30, 2008 and 2007,
      respectively.
 
 Liquidity
and Capital Resources
 
 Cash
Balances and Liquidity
 
 As of
June 30, 2008, excluding our on-campus participating properties, we had $86.2
million in cash and cash equivalents and restricted cash as compared to $18.4
million in cash and cash equivalents and restricted cash as of December 31,
2007.  Restricted cash primarily consists of escrow accounts held by
lenders and resident security deposits, as required by law in certain
states.  This increase in cash and cash equivalents was primarily due
to the completion of our equity offering in April 2008, which generated net
proceeds of approximately $252.2 million.  We used approximately
$101.6 million of the offering proceeds to fund the cash consideration and
related transaction costs for the acquisition of GMH.  We also used
the offering proceeds to pay off $24.2 million of fixed-rate mortgage debt
assumed on two properties acquired from GMH and $40.7 million to pay off the
outstanding balance on our revolving credit facility.  The increase in
restricted cash was primarily a result of balances acquired in the GMH
transaction.  Additionally, restricted cash as of June 30, 2008 also
included $0.5 million of funds held in escrow in connection with potential
development opportunities.
 
 As of
June 30, 2008, our short-term liquidity needs included, but were not limited to,
the following: (i) anticipated distribution payments to our common and
restricted stockholders totaling approximately $57.5 million based on an
anticipated annual distribution of $1.35 per share based on the number of our
shares outstanding as of June 30, 2008, including those distributions required
to maintain our REIT status and satisfy our current distribution policy, (ii)
anticipated distribution payments to our Operating Partnership unitholders
totaling approximately $1.7 million based on an anticipated annual distribution
of $1.35 per Common Unit and a cumulative preferential per annum cash
distribution rate of 5.99% on our Series A Preferred Units based on the number
of units outstanding as of June 30, 2008, (iii) development costs for Barrett
Honors College over the next 12 months, estimated to be approximately $90.0
million, and (iv) funds for capital improvements at acquired properties and
other potential development projects.  We expect to meet our
short-term liquidity requirements by (i) using the remaining proceeds from our
April 2008 equity offering, (ii) potentially disposing of properties, (iii)
borrowing under our revolving credit facility, and (iv) utilizing net cash
provided by operations.
 
 We may
seek additional funds to undertake initiatives not contemplated by our business
plan or obtain additional cushion against possible shortfalls.  We
also may pursue additional financing as opportunities arise.  Future
financings may include a range of different sizes or types of financing,
including the sale of additional debt or equity securities.  While we
believe we will be able to obtain such funds, these funds may not be available
on favorable terms or at all.  Our ability to obtain additional
financing depends on several factors, including future market conditions, our
success or lack of success in penetrating our markets, our future
creditworthiness, and restrictions contained in agreements with our investors or
lenders, including the restrictions contained in the agreements governing our
revolving credit facility and committed term loan facility.  These
financings could increase our level of indebtedness or result in dilution to our
equity holders.
 
 34
 Revolving
Credit Facility
 
 In May
2008, the Operating Partnership amended its $115 million revolving credit
facility to increase the size of the facility to $160 million, which may be
expanded by up to an additional $65 million upon the satisfaction of certain
conditions.  The maturity date of the facility is August 17, 2009 and
we continue to guarantee the Operating Partnership’s obligations under the
facility.
  Availability
under the revolving credit facility is limited to an "aggregate borrowing base
amount" equal to the lesser of (i) 65% of the value of certain properties,
calculated as set forth in the credit facility, and (ii) the adjusted net
operating income from these properties divided by a formula
amount.  The facility bears interest at a variable rate, at the
Company’s option, based upon a base rate or one-, two-, three-, or six-month
LIBOR plus, in each case, a spread based upon the Company’s total
leverage.  Additionally, we are required to pay an unused commitment
fee ranging from 0.15% to 0.20% per annum, depending on the aggregate unused
balance.  In April 2008, we paid off the entire balance on the
revolving credit facility using proceeds from our equity offering.  As
of June 30, 2008, the total availability under the facility balance (subject to
the satisfaction of certain financial covenants) totaled approximately $154.3
million.
 
 The terms
of the facility include certain restrictions and covenants, which limit, among
other items, the incurrence of additional indebtedness, liens, and the
disposition of assets.  The facility contains customary affirmative
and negative covenants and also contains financial covenants that, among other
things, require us to maintain certain minimum ratios of "EBITDA" (earnings
before interest, taxes, depreciation and amortization) to fixed
charges.  We may not pay distributions that exceed 100% of funds from
operations, as adjusted, for any four consecutive quarters.  The
financial covenants also include consolidated net worth and leverage ratio
tests.  As of June 30, 2008, we were in compliance with all such
covenants.
 
 Senior
Secured Term Loan
 
 On May
23, 2008, the Operating Partnership obtained a $100 million senior secured term
loan.  The secured term loan has an initial term of 36 months and can
be extended through May 2012 through the exercise of a 12-month extension
period.  The secured term loan bears interest at a variable rate, at
the Company’s option, based upon a base rate or one-, two-, three-, or six-month
LIBOR plus, in each case, a spread based upon the Company’s total
leverage.  On June 11, 2008, we borrowed in full from the secured term
loan and used the proceeds to fund a portion of the total cash consideration for
the GMH acquisition.  As of June 30, 2008, the balance outstanding on
the secured term loan was $100 million, bearing interest at a rate of
3.95%.  The secured term loan includes the same restrictions and
covenants as the revolving credit facility, described above.  We
guarantee the Operating Partnership’s obligations under the secured term
loan.
 
 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 common stockholders and unit
holders.  Distributions to common stockholders are at the discretion
of the Board of Directors. We may be required to use borrowings under the credit
facility, if necessary, to meet REIT distribution requirements and maintain our
REIT status. The Board of Directors considers market factors and our Company’s
performance in addition to REIT requirements in determining distribution
levels.
 
 Pre-Development
Expenditures
 
 Our
third-party and owned development activities have historically required us to
fund pre-development expenditures such as architectural fees, permits and
deposits.  The closing and/or commencement of construction of these
development projects is subject to a number of risks such as our inability to
obtain financing on favorable terms and delays or refusals in obtaining
necessary zoning, land use, building, and other required governmental permits
and authorizations  As such, we cannot always predict accurately the
liquidity needs of these activities.  We frequently incur these
pre-development expenditures before a financing commitment and/or required
permits and authorizations have been obtained.  Accordingly, we bear
the risk of the loss of these pre-development expenditures if financing cannot
ultimately be arranged on acceptable terms or we are unable to successfully
obtain the required permits and authorizations.
 
 35
 Historically,
our third-party and owned development projects have been successfully structured
and financed; however, these developments have at times been delayed beyond the
period initially scheduled, causing revenue to be recognized in later
periods.  As of June 30, 2008, we have deferred approximately $6.3
million in pre-development costs related to third-party and owned development
projects that have not yet commenced construction.
 
 Indebtedness
 
 As of
June 30, 2008, we had approximately $1,296.0 million of outstanding consolidated
indebtedness (excluding net unamortized debt discounts and debt premiums of
approximately $12.2 million and $6.8 million, respectively), comprised of a
$100.0 million balance on our secured term loan, $1,107.9 million in mortgage
and construction loans secured by our wholly-owned properties, $33.1 million in
mortgage loans secured by two phases of an on-campus participating property, and
$55.0 million in bond issuances secured by three of our on-campus participating
properties.  The weighted average interest rate on our consolidated
indebtedness as of June 30, 2008 was 5.6%.  As of June 30, 2008,
approximately 15.4% of our total consolidated indebtedness was variable rate
debt, comprised of our secured term loan and our Vista del Sol and Villas at
Chestnut Ridge construction loans discussed below.
 
 Wholly-Owned
Properties
 
 The
weighted average interest rate of the $1,107.9 million of wholly-owned mortgage
and construction debt was 5.62% as of June 30, 2008.  Each of the
mortgage loans is a non-recourse obligation subject to customary
exceptions.  Each of these mortgages has a 30 year amortization, and
none are cross-defaulted or cross-collateralized to any other indebtedness. The
loans generally may not be prepaid prior to maturity; in certain cases
prepayment is allowed, subject to prepayment penalties.
 
 The
development and construction of Vista del Sol, an ACE property scheduled to
complete construction and open for occupancy in August 2008, is partially
financed with a $100.0 million construction loan.  For each borrowing
we have the option of choosing the Prime rate or one-, two-, or three-month
LIBOR plus 1.45%.  The interest rate may be reduced to LIBOR plus
1.20% once construction of the property is complete and certain operations
hurdles are met.  The loan requires payments of interest only during
the term of the loan and any accrued interest and outstanding borrowings become
due on the maturity date of December 27, 2009.  The term of the loan
can be extended through December 2011 through the exercise of two 12-month
extension periods.  As of June 30, 2008, the balance outstanding on
the construction loan totaled $74.9 million, bearing interest at a weighted
average rate of 3.95%.
 
 The
development and construction of Villas at Chestnut Ridge, an owned off-campus
property scheduled to complete construction and open for occupancy in August
2008, is partially financed with a $31.6 million construction
loan.  For each borrowing we have the option of choosing the Prime
rate or one-, two-, three-, or six-month LIBOR plus 1.25%.  The loan
requires payments of interest only during the term of the loan and any accrued
interest and outstanding borrowings become due on the maturity date of June 4,
2009.  The term of the loan can be extended through June 2010 through
the exercise of a 12-month extension period.  As of June 30, 2008, the
balance outstanding on the construction loan totaled $23.8 million, bearing
interest at a weighted average rate of 3.7%.
 
 On-Campus
Participating Properties
 
 Three of
our on-campus participating properties are 100% financed with $55.0 million of
outstanding project-based taxable bonds.  Under the terms of these
financings, one of our special purpose subsidiaries publicly issued three series
of taxable bonds and loaned the proceeds to three special purpose subsidiaries
that each hold a separate leasehold interest.  Although a default in
payment by these special purpose subsidiaries could result in a default under
one or more series of bonds, the indebtedness of any of these special purpose
subsidiaries is not cross-defaulted or cross-collateralized with indebtedness of
the Company, the Operating Partnership or other special purpose
subsidiaries.  Repayment of principal and interest on these bonds is
insured by MBIA, Inc.  The loans encumbering the leasehold interests
are non-recourse, subject to customary exceptions.
 
 Cullen
Oaks Phase I and Phase II loans are currently encumbered by mortgage loans with
balances as of June 30, 2008 of approximately $16.5 million and $16.6 million,
respectively.  In February 2007, we extended the maturity date of
these loans to February 2014.  The loans bear interest at a rate of
LIBOR plus 1.35% and required payments of interest only through May 2008 and
monthly payments of principal and interest from May 2008 through the maturity
date.  In connection with these loan extensions, we terminated the
existing interest rate swap agreement on the Cullen Oaks Phase I loan and
entered into a new interest rate swap agreement effective February 15, 2007
through February 15, 2014, that is designated to hedge our exposure to
fluctuations on interest payments attributed to changes in interest rates
associated with payments on the Cullen Oaks Phase I and Phase II
loans.  Under the terms of the interest rate swap agreement, we pay a
fixed rate of 6.69% and receive a floating rate of LIBOR plus
1.35%.  Pursuant to the Leases, in the event the leasehold estate does
not achieve Financial Break Even (defined as revenues less operating expenses,
excluding management fees, less debt service), the applicable Lessor would be
required to make a rental payment, also known as the Contingent Payment,
sufficient to achieve Financial Break Even.  The Contingent Payment
provision remains in effect until such time as any financing placed on the
facilities would receive an investment grade rating without the Contingent
Payment provision.  In the event that the Lessor is required to make a
Contingent Payment, future net cash flow distributions would be first applied to
repay such Contingent Payments and then to unpaid management fees prior to
normal distributions.  We have guaranteed payment of this property’s
indebtedness.
 
 36
 The
weighted average interest rate of the indebtedness encumbering our on-campus
participating properties was 7.17% at June 30, 2008.
 
 Off Balance Sheet Items
 
 As
discussed in Note 8 in the accompanying Notes to Consolidated Financial
Statements contained in Item 1 herein, we hold a 10% equity interest in two
unconsolidated joint ventures with mortgage debt outstanding of approximately
$343 million as of June 30, 2008.  We serve as guarantor of this debt
which means it agrees to be liable to the lender for any loss, damage, cost,
expense, liability, claim or other obligation incurred by the lender arising out
of or in connection with fraud by the borrower in connection with the
loan.
 
 Funds
From Operations
 
 As
defined by NAREIT, FFO represents income (loss) before allocation to minority
interests (computed in accordance with GAAP), excluding gains (or losses) from
sales of property, plus real estate related depreciation and amortization
(excluding amortization of loan origination costs) and after adjustments for
unconsolidated partnerships and joint ventures. 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
pay dividends or make distributions.
 
 37
 The
following table presents a reconciliation of our FFO to our net
income:
 
 Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      (loss) income
                
                $
                (1,450
                )
                
                $
                (785
                )
                
                $
                3,459
                
                
                $
                (5,463
                )Minority
      interests
                
                
                65
                
                
                
                26
                
                
                
                473
                
                
                
                (232
                )Loss
      from unconsolidated joint ventures
                
                
                129
                
                
                
                -
                
                
                
                255
                
                
                
                -FFO
      from unconsolidated joint ventures (1)
                
                
                (13
                )
                
                
                -
                
                
                
                (139
                )
                
                
                -Real
      estate related depreciation and amortization:Total
      depreciation and amortization
                
                
                11,114
                
                
                
                7,768
                
                
                
                19,143
                
                
                
                14,738Corporate
      furniture, fixtures, and equipment depreciation
                
                
                (171
                )
                
                
                (175
                )
                
                
                (352
                )
                
                
                (269
                )Funds
      from operations (“FFO”)  (2)
                
                $
                9,674
                
                
                $
                6,834
                
                
                $
                22,839
                
                
                $
                8,774FFO
      per share – diluted  (2)
                
                $
                0.26
                
                
                $
                0.27
                
                
                $
                0.69
                
                
                $
                0.35Weighted
      average common shares outstanding – diluted
                
                
                37,383,565
                
                
                
                25,423,486
                
                
                
                33,272,354
                
                
                
                25,409,100
 
 (1)
                Represents
      our share of the FFO from three joint ventures in which we are a minority
      partner.  Includes the Hampton Roads Military Housing joint
      venture in which we have a minimal economic interest as well as our 10%
      minority interest in two joint ventures formed or assumed as part of the
      company's acquisition of GMH.
  (2)
                  During the three and six months
      ended June 30, 2007, we recorded a compensation charge of approximately
      $0.3 and $9.9
      million, or $0.01 and $0.39 per fully diluted share, respectively, related
      to the 2004 Outperformance Bonus Plan.  Excluding this
      compensation charge, FFO for the three and six months ended June 30, 2007
      would have been $7.1 million and $18.7 million, or $0.28 and $0.74 per
      fully diluted share,
respectively.
 While our
on-campus participating properties contributed $3.9 million and $3.7 to our
revenues for the three months ended June 30, 2008 and 2007, respectively, and
$10.7 million and $10.1 million to our revenues for the six months ended June
30, 2008 and 2007, respectively, under our participating ground leases, we and
the participating university systems each receive 50% of the properties’ net
cash available for distribution after payment of operating expenses, debt
service (which includes significant amounts towards repayment of principal) and
capital expenditures. A substantial portion of our revenues attributable to
these properties is reflective of cash that is required to be used for capital
expenditures and for the amortization of applicable property indebtedness. These
amounts do not increase our economic interest in these properties or otherwise
benefit us since our interest in the properties terminates upon the repayment of
the applicable property indebtedness.
 
 As noted
above, FFO excludes GAAP historical cost depreciation and amortization of real
estate and related assets because these GAAP items assume that the value of real
estate diminishes over time.  However, unlike the ownership of our
owned off-campus properties, the unique features of our ownership interest in
our on-campus participating properties cause the value of these properties to
diminish over time.  For example, since the ground/facility leases
under which we operate the participating properties require the reinvestment
from operations of specified amounts for capital expenditures and for the
repayment of debt while our interest in these properties terminates upon the
repayment of the debt, such capital expenditures do not increase the value of
the property to us and mortgage debt amortization only increases the equity of
the ground lessor. Accordingly, when considering our FFO, we believe it is also
a meaningful measure of our performance to modify FFO to exclude the operations
of our on-campus participating properties and to consider their impact on
performance by including only that portion of our revenues from those properties
that are reflective of our share of net cash flow and the management fees that
we receive, both of which increase and decrease with the operating measure of
the properties, a measure referred to herein as FFOM.
 
 38
 Funds
From Operations—Modified for Operational Performance of On-Campus Participating
Properties:
 
 Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Funds
      from operations
                
                $
                9,674
                
                
                $
                6,834
                
                
                $
                22,839
                
                
                $
                8,774Elimination
      of operations of on-campus participating properties and unconsolidated
      joint venture:Net
      loss (income) from on-campus
      participating  properties
                
                
                1,356
                
                
                
                1,683
                
                
                
                (326
                )
                
                
                106Amortization
      of investment in on-campus participating properties
                
                
                (1,074
                )
                
                
                (1,065
                )
                
                
                (2,143
                )
                
                
                (2,126
                )FFO
      from unconsolidated joint venture (1)
                
                
                83
                
                
                
                -
                
                
                
                209
                
                
                
                -10,039
                
                
                
                7,452
                
                
                
                20,579
                
                
                
                6,754Modifications
      to reflect operational performance of on-campus
                  participating
      properties:Our
      share of net cash flow (2)
                
                
                368
                
                
                
                495
                
                
                
                727
                
                
                
                790Management
      fees
                
                
                182
                
                
                
                173
                
                
                
                490
                
                
                
                463Impact
      of on-campus participating properties
                
                
                550
                
                
                
                668
                
                
                
                1,217
                
                
                
                1,253Funds
      from operations – modified for operational performanceof
      on-campus participating properties (“FFOM”)  (3)
                
                $
                10,589
                
                
                $
                8,120
                
                
                $
                21,796
                
                
                $
                8,007FFOM
      per share – diluted  (3)
                
                $
                0.28
                
                
                $
                0.32
                
                
                $
                0.66
                
                
                $
                0.32Weighted
      average common shares outstanding – diluted
                
                
                37,383,565
                
                
                
                25,423,486
                
                
                
                33,272,354
                
                
                
                25,409,100
  (1)
                  Our
      share of the FFO from the Hampton Roads Military Housing unconsolidated
      joint venture is excluded from the calculation of FFOM, as management
      believes this amount does not accurately reflect the company's
      participation in the economics of the
  transaction.
  (2)
                      50%
      of the properties’ net cash available for distribution after payment of
      operating expenses, debt service (including repayment of principal) and
      capital expenditures. Represents amounts accrued for the interim
      periods.
  (3)
                          During
      the three and six months ended June 30, 2007, we recorded a compensation
      charge of approximately $0.3 and $9.9 million, or $0.01 and $0.39 per
      fully diluted share, respectively, related to the 2004 Outperformance
      Bonus Plan.  Excluding this compensation charge, FFOM for the
      three and six months ended June 30, 2008 would have been $8.4 million and
      $17.9 million, or $0.33 and $0.71 per fully diluted share,
      respectively.
 This
narrower measure of performance measures our profitability for these properties
in a manner that is similar to the measure of our profitability from our
services business where we similarly incur no initial or ongoing capital
investment in a property and derive only consequential benefits from capital
expenditures and debt amortization. We believe, however, that this narrower
measure of performance is inappropriate in traditional real estate ownership
structures where debt amortization and capital expenditures enhance the property
owner’s long-term profitability from its investment.
 
 Our FFOM
may have limitations as an analytical tool because it reflects the unique
contractual calculation of net cash flow from our on-campus participating
properties, which is different from that of our off campus owned
properties.  Additionally, FFOM reflects features of our ownership
interests in our on-campus participating properties that are unique to us.
Companies that are considered to be in our industry may not have similar
ownership structures; and therefore those companies may not calculate a FFOM in
the same manner that we do, or at all, limiting its usefulness as a comparative
measure. We compensate for these limitations by relying primarily on our GAAP
and FFO results and using our modified FFO only supplementally.
 
 Inflation
 
 Our
leases do not typically provide for rent escalations.  However, they
typically do not have terms that extend beyond 12 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, a weak economic environment or
declining student enrollment at our principal universities may limit our ability
to raise rental rates.
  39
 Item
3.  Quantitative and Qualitative Disclosures About Market
Risk
 
 Market
risk is the risk of loss from adverse changes in market prices and interest
rates.   Our future earnings and cash flows are dependent upon
prevailing market rates.  Accordingly, we manage our market risk by
matching projected cash inflows from operating, investing and financing
activities with projected cash outflows for debt service, acquisitions, capital
expenditures, distributions to stockholders and unitholders, and other cash
requirements.  The majority of our outstanding debt has fixed interest
rates, which minimizes the risk of fluctuating interest rates.  Our
exposure to market risk includes interest rate fluctuations in connection with
our revolving credit facility and variable rate construction loans and our
ability to incur more debt without stockholder approval, thereby increasing our
debt service obligations, which could adversely affect our cash
flows.   No material changes have occurred in relation to market
risk since our Annual Report on Form 10-K for the year ended December 31,
2007.
 
 Item 4.  Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 As
required by SEC Rule 13a-15(b), we have carried out an evaluation, under
the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the quarter covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures for the quarter covered by this report were effective at the
reasonable assurance level.
  There has
been no change in our internal controls over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
  40
 PART
II.   OTHER INFORMATION
 
 Item
4.  Submission of Matters to a Vote of Security Holders
  (a)
                The annual meeting of shareholders
      ofthe
      Companywas held on
      May8, 2008.
 (b)
                The following individuals were
      reelected as members of the Company’s Board of Directors at the annual
      meeting held on May 8, 2008:  William C. Bayless, Jr., R.D.
      Burck (Chairman), G. Steven Dawson, Cydney C. Donnell, Edward Lowenthal,
      Brian B. Nickel, Scott H. Rechler, Winston W.
    Walker.
 (c)
                The following votes were taken in
      connection withthe
      election of the members of the Company’s Board of Directors at the annual
      meeting:
  Board
      Member
                
                Votes
      in Favor
                
                Votes
      WithheldWilliam
      C. Bayless, Jr.
                
                24,649,895
                
                96,724R.D.
      Burck
                
                24,648,886
                
                97,733G.
      Steven Dawson
                
                24,602,860
                
                143,759Cydney
      C. Donnell
                
                24,651,256
                
                95,363Edward
      Lowenthal
                
                24,602,960
                
                143,659Brian
      B. Nickel
                
                24,650,002
                
                96,617Scott
      H. Rechler
                
                23,862,574
                
                884,045Winston
      W. Walker
                
                24,650,806
                
                95,813
  (d)
                  The appointment of Ernst &
      Young LLP as independent public accountants to audit our consolidated
      financial statements
      for the year ending December 31, 2008, was ratified with 24,611,798
      affirmative votes cast, 129,260 negative votes cast and 7,561
      abstentions.  The affirmative vote of the holders of a majority
      of the outstanding shares of common stock represented at the annual
      meeting was required to ratify the appointment of Ernst & Young
      LLP.
 
 Item
6.  Exhibits
  Exhibit
                    Number
                  Description
      of Document31.1
                  Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.
  31.2
                  Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.
  32.1
                Certification
      of Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
  32.2
                Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
  41
 SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
 Dated:
                August
      11, 2008
 
 
 
 AMERICAN
      CAMPUS COMMUNITIES, INC.By:
                /s/
      William C. Bayless, Jr.William
      C. Bayless, Jr.
                  President
      and Chief Executive OfficerBy:
                /s/
      Jonathan A. GrafJonathan
      A. Graf
                  Executive
      Vice President,
                  Chief
      Financial Officer and Treasurer




42