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 September 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 42,305,883 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
November 3, 2008.












FORM
10-Q


FOR
THE QUARTER ENDED SEPTEMBER 30, 2008




TABLE
OF CONTENTS




PAGENO.PART
      I.Item
      1.
                  Consolidated
      Financial StatementsConsolidated Balance Sheets as of September 30, 2008
      (unaudited) and December 31, 2007
                  
                  1Consolidated
      Statements of Operations for thethree and nine
      months ended September 30, 2008 and 2007 (all
      unaudited)
                  
                  2Consolidated
      Statements of Comprehensive Income for thenine months ended
      September 30, 2008 and 2007 (all unaudited)
                  
                  3Consolidated
      Statements of Cash Flows for the nine months ended September 30, 2008 and2007
      (all unaudited)
                  
                  4Notes to Consolidated Financial
Statements
                  
                  5Item 2.
                  Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
                  
                  20Item 3.
                  Quantitative and
      Qualitative Disclosureabout Market
      Risk
                  
                  41Item 4.
                  Controls and Procedures
                  
                  41PART II.Item 6.
                  Exhibits
                  
                  42SIGNATURES
                  
                  43









AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS


(in
thousands, except share and per share data)




September
      30, 2008
                            
                            
                            December
      31, 2007(Unaudited)AssetsInvestments
      in real estate:Wholly-owned
      properties, net
                            
                            $
                            1,979,090
                            
                            
                            $
                            947,062On-campus
      participating properties, net
                            
                            
                            70,313
                            
                            
                            
                            72,905Investments
      in real estate, net
                            
                            
                            2,049,403
                            
                            
                            
                            1,019,967Cash
      and cash equivalents
                            
                            
                            37,300
                            
                            
                            
                            12,073Restricted
      cash
                            
                            
                            30,183
                            
                            
                            
                            13,855Student
      contracts receivable, net
                            
                            
                            4,806
                            
                            
                            
                            3,657Other
      assets
                            
                            
                            70,110
                            
                            
                            
                            26,744Total
      assets
                            
                            $
                            2,191,802
                            
                            
                            $
                            1,076,296Liabilities
      and stockholders’ equityLiabilities:Secured
      debt
                            
                            $
                            1,154,376
                            
                            
                            $
                            533,430Secured
      term loan
                            
                            
                            100,000
                            
                            
                            
                            —Unsecured
      revolving credit facility
                            
                            
                            —
                            
                            
                            
                            9,600Accounts
      payable and accrued expenses
                            
                            
                            39,213
                            
                            
                            
                            14,360Other
      liabilities
                            
                            
                            61,744
                            
                            
                            
                            43,278Total
      liabilities
                            
                            
                            1,355,333
                            
                            
                            
                            600,668Minority
      interests
                            
                            
                            29,038
                            
                            
                            
                            31,251Commitments
      and contingencies (Note 14)Stockholders’
      equity:Preferred
      stock
                            
                            
                            131
                            
                            
                            
                            —Common
      shares, $.01 par value, 800,000,000 shares authorized, 42,305,883 and
      27,275,491 shares issued and outstanding at September 30, 2008 andDecember
      31, 2007, respectively
                            
                            
                            422
                            
                            
                            
                            273Additional
      paid in capital
                            
                            
                            903,003
                            
                            
                            
                            494,160Accumulated
      earnings and distributions
                            
                            
                            (94,021
                            )
                            
                            
                            (48,181
                            )Accumulated
      other comprehensive loss
                            
                            
                            (2,104
                            )
                            
                            
                            (1,875
                            )Total
      stockholders’ equity
                            
                            
                            807,431
                            
                            
                            
                            444,377Total
      liabilities and stockholders’ equity
                            
                            $
                            2,191,802
                            
                            
                            $
                            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 September 30,
                                              
                                              
                                              Nine
      Months Ended September 30,2008
                                              
                                              
                                              2007
                                              
                                              
                                              2008
                                              
                                              
                                              2007Revenues:Wholly-owned
      properties
                                              
                                              $
                                              60,663
                                              
                                              
                                              $
                                              30,045
                                              
                                              
                                              $
                                              129,638
                                              
                                              
                                              $
                                              85,197On-campus
      participating properties
                                              
                                              
                                              4,301
                                              
                                              
                                              
                                              4,083
                                              
                                              
                                              
                                              14,993
                                              
                                              
                                              
                                              14,160Third
      party development services
                                              
                                              
                                              4,483
                                              
                                              
                                              
                                              1,347
                                              
                                              
                                              
                                              6,790
                                              
                                              
                                              
                                              2,325Third
      party development services – on-campusparticipating properties
                                              
                                              
                                              36
                                              
                                              
                                              
                                              36
                                              
                                              
                                              
                                              108
                                              
                                              
                                              
                                              109Third
      party management services
                                              
                                              
                                              2,041
                                              
                                              
                                              
                                              627
                                              
                                              
                                              
                                              4,185
                                              
                                              
                                              
                                              1,999Resident
      services
                                              
                                              
                                              610
                                              
                                              
                                              
                                              380
                                              
                                              
                                              
                                              1,409
                                              
                                              
                                              
                                              1,044Total
      revenues
                                              
                                              
                                              72,134
                                              
                                              
                                              
                                              36,518
                                              
                                              
                                              
                                              157,123
                                              
                                              
                                              
                                              104,834Operating
      expenses:Wholly-owned
      properties
                                              
                                              
                                              38,812
                                              
                                              
                                              
                                              16,368
                                              
                                              
                                              
                                              69,435
                                              
                                              
                                              
                                              41,276On-campus
      participating properties
                                              
                                              
                                              3,274
                                              
                                              
                                              
                                              2,317
                                              
                                              
                                              
                                              8,068
                                              
                                              
                                              
                                              6,842Third
      party development and management services
                                              
                                              
                                              3,277
                                              
                                              
                                              
                                              1,484
                                              
                                              
                                              
                                              7,713
                                              
                                              
                                              
                                              3,925General
      and administrative
                                              
                                              
                                              3,191
                                              
                                              
                                              
                                              2,286
                                              
                                              
                                              
                                              8,562
                                              
                                              
                                              
                                              15,804Depreciation
      and amortization
                                              
                                              
                                              18,148
                                              
                                              
                                              
                                              7,797
                                              
                                              
                                              
                                              37,291
                                              
                                              
                                              
                                              22,535Ground/facility
      leases
                                              
                                              
                                              508
                                              
                                              
                                              
                                              473
                                              
                                              
                                              
                                              1,235
                                              
                                              
                                              
                                              1,263Total
      operating expenses
                                              
                                              
                                              67,210
                                              
                                              
                                              
                                              30,725
                                              
                                              
                                              
                                              132,304
                                              
                                              
                                              
                                              91,645Operating
      income
                                              
                                              
                                              4,924
                                              
                                              
                                              
                                              5,793
                                              
                                              
                                              
                                              24,819
                                              
                                              
                                              
                                              13,189Nonoperating
      income and (expenses):Interest
      income
                                              
                                              
                                              244
                                              
                                              
                                              
                                              221
                                              
                                              
                                              
                                              1,048
                                              
                                              
                                              
                                              1,242Interest
      expense
                                              
                                              
                                              (17,022
                                              )
                                              
                                              
                                              (7,560
                                              )
                                              
                                              
                                              (32,734
                                              )
                                              
                                              
                                              (20,940
                                              )Amortization
      of deferred financing costs
                                              
                                              
                                              (832
                                              )
                                              
                                              
                                              (324
                                              )
                                              
                                              
                                              (1,591
                                              )
                                              
                                              
                                              (936
                                              )Loss
      from unconsolidated joint ventures
                                              
                                              
                                              (926
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (1,181
                                              )
                                              
                                              
                                              —Other
      nonoperating income
                                              
                                              
                                              486
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              486
                                              
                                              
                                              
                                              —Total
      nonoperating expenses
                                              
                                              
                                              (18,050
                                              )
                                              
                                              
                                              (7,663
                                              )
                                              
                                              
                                              (33,972
                                              )
                                              
                                              
                                              (20,634
                                              )Loss
      before income taxes, minority interests, and discontinued
      operations
                                              
                                              
                                              (13,126
                                              )
                                              
                                              
                                              (1,870
                                              )
                                              
                                              
                                              (9,153
                                              )
                                              
                                              
                                              (7,445
                                              )Income
      tax provision
                                              
                                              
                                              (128
                                              )
                                              
                                              
                                              (576
                                              )
                                              
                                              
                                              (261
                                              )
                                              
                                              
                                              (696
                                              )Minority
      interests
                                              
                                              
                                              275
                                              
                                              
                                              
                                              77
                                              
                                              
                                              
                                              (198
                                              )
                                              
                                              
                                              309Loss
      from continuing operations
                                              
                                              
                                              (12,979
                                              )
                                              
                                              
                                              (2,369
                                              )
                                              
                                              
                                              (9,612
                                              )
                                              
                                              
                                              (7,832
                                              )Discontinued
      operations:Loss
      attributable to discontinued operations
                                              
                                              
                                              (115
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (23
                                              )
                                              
                                              
                                              —Net
      loss
                                              
                                              $
                                              (13,094
                                              )
                                              
                                              $
                                              (2,369
                                              )
                                              
                                              $
                                              (9,635
                                              )
                                              
                                              $
                                              (7,832
                                              )Loss
      per share – basic:Loss
      from continuing operations per share
                                              
                                              $
                                              (0.31
                                              )
                                              
                                              $
                                              (0.10
                                              )
                                              
                                              $
                                              (0.27
                                              )
                                              
                                              $
                                              (0.34
                                              )Net
      loss per share
                                              
                                              $
                                              (0.31
                                              )
                                              
                                              $
                                              (0.10
                                              )
                                              
                                              $
                                              (0.27
                                              )
                                              
                                              $
                                              (0.34
                                              )Loss
      per share – diluted:Loss
      from continuing operations per share
                                              
                                              $
                                              (0.30
                                              )
                                              
                                              $
                                              (0.10
                                              )
                                              
                                              $
                                              (0.26
                                              )
                                              
                                              $
                                              (0.33
                                              )Net
      loss per share
                                              
                                              $
                                              (0.31
                                              )
                                              
                                              $
                                              (0.10
                                              )
                                              
                                              $
                                              (0.26
                                              )
                                              
                                              $
                                              (0.33
                                              )Weighted
      average common shares outstanding:Basic
                                              
                                              
                                              42,314,175
                                              
                                              
                                              
                                              23,563,651
                                              
                                              
                                              
                                              35,139,189
                                              
                                              
                                              
                                              23,261,475Diluted
                                              
                                              
                                              43,577,493
                                              
                                              
                                              
                                              25,320,144
                                              
                                              
                                              
                                              36,549,728
                                              
                                              
                                              
                                              25,273,845Distributions
      declared per common share
                                              
                                              $
                                              0.3375
                                              
                                              
                                              $
                                              0.3375
                                              
                                              
                                              $
                                              1.0125
                                              
                                              
                                              $
                                              1.0125




See
accompanying notes to consolidated financial statements.




2




AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited,
in thousands)




Nine
      Months Ended September
      30,2008
                    
                    
                    2007Net
      loss
                    
                    $
                    (9,635
                    )
                    
                    $
                    (7,832
                    )Other
      comprehensive loss:Change
      in fair value of interest rate swaps
                    
                    
                    (48
                    )
                    
                    
                    (917
                    )Net
      comprehensive loss
                    
                    $
                    (9,683
                    )
                    
                    $
                    (8,749
                    )




See
accompanying notes to consolidated financial statements.




3




AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited,
in thousands)




Nine
      Months Ended September 30,2008
                                  
                                  
                                  2007Operating
      activitiesNet
      loss
                                  
                                  $
                                  (9,635
                                  )
                                  
                                  $
                                  (7,832
                                  )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Minority
      interests share of loss
                                  
                                  
                                  198
                                  
                                  
                                  
                                  (309
                                  )Depreciation
      and amortization
                                  
                                  
                                  37,291
                                  
                                  
                                  
                                  22,535Amortization
      of deferred financing costs and debt premiums/discounts
                                  
                                  
                                  868
                                  
                                  
                                  
                                  (165
                                  )Share-based
      compensation
                                  
                                  
                                  1,512
                                  
                                  
                                  
                                  4,662Loss
      from unconsolidated joint ventures
                                  
                                  
                                  1,181
                                  
                                  
                                  
                                  —Amortization
      of gain on interest rate swap termination
                                  
                                  
                                  (181
                                  )
                                  
                                  
                                  (151
                                  )Income
      tax provision
                                  
                                  
                                  248
                                  
                                  
                                  
                                  696Changes
      in operating assets and liabilities:Restricted
      cash
                                  
                                  
                                  (2,499
                                  )
                                  
                                  
                                  (2,116
                                  )Student
      contracts receivable, net
                                  
                                  
                                  336
                                  
                                  
                                  
                                  (1,137
                                  )Other
      assets
                                  
                                  
                                  (8,079
                                  )
                                  
                                  
                                  (5,471
                                  )Accounts
      payable and accrued expenses
                                  
                                  
                                  1,035
                                  
                                  
                                  
                                  (8
                                  )Other
      liabilities
                                  
                                  
                                  685
                                  
                                  
                                  
                                  998Net
      cash provided by operating activities
                                  
                                  
                                  22,960
                                  
                                  
                                  
                                  11,702Investing
      activitiesNet
      proceeds from dispositions of real estate
                                  
                                  
                                  4,418
                                  
                                  
                                  
                                  —Cash
      paid for property acquisitions
                                  
                                  
                                  (286,350
                                  )
                                  
                                  
                                  (43,183
                                  )Cash
      paid for land purchases
                                  
                                  
                                  (3,226
                                  )
                                  
                                  
                                  —Investments
      in wholly-owned properties
                                  
                                  
                                  (115,552
                                  )
                                  
                                  
                                  (92,863
                                  )Investments
      in unconsolidated joint ventures
                                  
                                  
                                  (10,610
                                  )
                                  
                                  
                                  —Investments
      in on-campus participating properties
                                  
                                  
                                  (637
                                  )
                                  
                                  
                                  (402
                                  )Purchase
      of corporate furniture, fixtures and equipment
                                  
                                  
                                  (1,875
                                  )
                                  
                                  
                                  (347
                                  )Distributions
      received from unconsolidated JVs
                                  
                                  
                                  15
                                  
                                  
                                  
                                  —Net
      cash used in investing activities
                                  
                                  
                                  (413,817
                                  )
                                  
                                  
                                  (136,795
                                  )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
                                  )
                                  
                                  
                                  47,900Proceeds
      from construction loans
                                  
                                  
                                  70,629
                                  
                                  
                                  
                                  30,613Principal
      payments on debt
                                  
                                  
                                  (7,569
                                  )
                                  
                                  
                                  (6,251
                                  )Change
      in construction accounts payable
                                  
                                  
                                  3,715
                                  
                                  
                                  
                                  12,165Debt
      issuance and assumption costs
                                  
                                  
                                  (5,757
                                  )
                                  
                                  
                                  (1,638
                                  )Distributions
      to common and restricted stockholders
                                  
                                  
                                  (36,254
                                  )
                                  
                                  
                                  (23,722
                                  )Distributions
      to minority partners
                                  
                                  
                                  (1,590
                                  )
                                  
                                  
                                  (2,229
                                  )Net
      cash provided by financing activities
                                  
                                  
                                  416,084
                                  
                                  
                                  
                                  56,838Net
      change in cash and cash equivalents
                                  
                                  $
                                  25,227
                                  
                                  
                                  $
                                  (68,255
                                  )Cash
      and cash equivalents at beginning of period
                                  
                                  
                                  12,073
                                  
                                  
                                  
                                  79,107Cash
      and cash equivalents at end of period
                                  
                                  $
                                  37,300
                                  
                                  
                                  $
                                  10,852Supplemental
      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
                                  
                                  $
                                  (48
                                  )
                                  
                                  $
                                  (917
                                  )Supplemental
      disclosure of cash flow informationInterest
      paid
                                  
                                  $
                                  33,905
                                  
                                  
                                  $
                                  24,289




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, was approximately $252.1 million.




As of
September 30, 2008, the Company’s property portfolio contained 86 student
housing properties with approximately 52,800 beds and approximately 17,500
apartment units, including 40 properties containing approximately 23,500 beds
and approximately 7,500 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 80 owned off-campus properties that are in close
proximity to colleges and universities, two American Campus Equity (“ACETM”)
properties 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
September 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 September 30, 2008, the Company provided third-party
management and leasing services for 35 properties (six of which the Company
served as the third-party developer and construction manager) that represented
approximately 25,200 beds in approximately 9,100 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 September 30, 2008, the Company’s total owned, joint
venture and third-party managed portfolio was comprised of 142 properties with
approximately 90,100 beds in approximately 30,200 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





Pending
Accounting 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
$1.1 million and $1.4 million was capitalized during the three months ended
September 30, 2008 and 2007, respectively, and $4.7 million and $4.0 million was
capitalized during the nine months ended September 30, 2008 and 2007,
respectively.  Amortization of deferred financing costs totaling
approximately $35,000 and $0.1 million was capitalized during the three months
ended September 30, 2008 and 2007, respectively, and approximately $0.2 million
and $0.3 million was capitalized during the nine months ended September 30, 2008
and 2007, respectively.




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 September 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
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 nine months ended
September 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 nine months ended September 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 September
30, 2008 and December 31, 2007, unamortized debt premiums were $6.2 million and
$5.0 million, respectively, and unamortized debt discounts were $10.9 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 September 30, 2008, the Company deferred
approximately $4.5 million in pre-development costs related to third-party and
owned development projects that had not yet commenced
construction.  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.




The
Company owns two TRS entities that manage the Company’s non-REIT activities and
are subject to federal, state and local income taxes.




8




AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  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 September 30,
                                              
                                              
                                              Nine
      Months Ended September 30,2008
                                              
                                              
                                              2007
                                              
                                              
                                              2008
                                              
                                              
                                              2007Basic
      earnings per share calculation:Loss
      from continuing operations
                                              
                                              $
                                              (12,979
                                              )
                                              
                                              $
                                              (2,369
                                              )
                                              
                                              $
                                              (9,612
                                              )
                                              
                                              $
                                              (7,832
                                              )Loss
      from discontinued operations
                                              
                                              
                                              (115
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (23
                                              )
                                              
                                              
                                              —Net
      loss
                                              
                                              $
                                              (13,094
                                              )
                                              
                                              $
                                              (2,369
                                              )
                                              
                                              $
                                              (9,635
                                              )
                                              
                                              $
                                              (7,832
                                              )Loss
      from continuing operations – per share
                                              
                                              $
                                              (0.31
                                              )
                                              
                                              $
                                              (0.10
                                              )
                                              
                                              $
                                              (0.27
                                              )
                                              
                                              $
                                              (0.34
                                              )Loss
      from discontinued operations – per share
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —Net
      loss – per share
                                              
                                              $
                                              (0.31
                                              )
                                              
                                              $
                                              (0.10
                                              )
                                              
                                              $
                                              (0.27
                                              )
                                              
                                              $
                                              (0.34
                                              )Basic
      weighted average common sharesoutstanding
                                              
                                              
                                              42,314,175
                                              
                                              
                                              
                                              23,563,651
                                              
                                              
                                              
                                              35,139,189
                                              
                                              
                                              
                                              23,261,475Diluted
      earnings per share calculation:Loss
      from continuing operations
                                              
                                              $
                                              (12,979
                                              )
                                              
                                              $
                                              (2,369
                                              )
                                              
                                              $
                                              (9,612
                                              )
                                              
                                              $
                                              (7,832
                                              )Series
      A Preferred Unit distributions
                                              
                                              
                                              46
                                              
                                              
                                              
                                              46
                                              
                                              
                                              
                                              138
                                              
                                              
                                              
                                              138Loss
      from continuing operations allocated toCommon
      Units
                                              
                                              
                                              (349
                                              )
                                              
                                              
                                              (152
                                              )
                                              
                                              
                                              (125
                                              )
                                              
                                              
                                              (569
                                              )Loss
      from continuing operations, asadjusted
                                              
                                              
                                              (13,282
                                              )
                                              
                                              
                                              (2,475
                                              )
                                              
                                              
                                              (9,599
                                              )
                                              
                                              
                                              (8,263
                                              )Loss
      from discontinued operations
                                              
                                              
                                              (115
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (23
                                              )
                                              
                                              
                                              —Loss
      from discontinued operations allocated toCommon
      Units
                                              
                                              
                                              (3
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (1
                                              )
                                              
                                              
                                              —Loss
      from discontinued operations, as adjusted
                                              
                                              
                                              (118
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (24
                                              )
                                              
                                              
                                              —Net
      loss, as adjusted
                                              
                                              $
                                              (13,400
                                              )
                                              
                                              $
                                              (2,475
                                              )
                                              
                                              $
                                              (9,623
                                              )
                                              
                                              $
                                              (8,263
                                              )Loss
      from continuing operations – per share
                                              
                                              $
                                              (0.30
                                              )
                                              
                                              $
                                              (0.10
                                              )
                                              
                                              $
                                              (0.26
                                              )
                                              
                                              $
                                              (0.33
                                              )Loss
      from discontinued operations – per share
                                              
                                              $
                                              (0.01
                                              )
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —Net
      loss – per share
                                              
                                              $
                                              (0.31
                                              )
                                              
                                              $
                                              (0.10
                                              )
                                              
                                              $
                                              (0.26
                                              )
                                              
                                              $
                                              (0.33
                                              )Basic
      weighted average common sharesoutstanding
                                              
                                              
                                              42,314,175
                                              
                                              
                                              
                                              23,563,651
                                              
                                              
                                              
                                              35,139,189
                                              
                                              
                                              
                                              23,261,475Common
      Units
                                              
                                              
                                              1,148,355
                                              
                                              
                                              
                                              1,641,530
                                              
                                              
                                              
                                              1,295,576
                                              
                                              
                                              
                                              1,897,407Series
      A Preferred Units
                                              
                                              
                                              114,963
                                              
                                              
                                              
                                              114,963
                                              
                                              
                                              
                                              114,963
                                              
                                              
                                              
                                              114,963Diluted
      weighted average common sharesOutstanding (1)
                                              
                                              
                                              43,577,493
                                              
                                              
                                              
                                              25,320,144
                                              
                                              
                                              
                                              36,549,728
                                              
                                              
                                              
                                              25,273,845




(1)
              283,174
      and 173,569 weighted average RSAs are excluded from diluted weighted
      average common shares outstanding for the three months ended September 30,
      2008 and 2007, respectively, and 277,749 and 163,724 weighted average RSAs
      are excluded from diluted weighted average common shares outstanding for
      the nine months ended September 30, 2008 and 2007, respectively, 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’s student housing
business 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 during the third quarter (see
Note 4).




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
                                
                                
                                49,012Total
      consideration
                                
                                
                                443,566Fair
      value of mortgage loans assumed (see Note 9)
                                
                                
                                598,804Total
      purchase price
                                
                                $
                                1,042,370




Under the
terms of the Merger Agreement, each GMH common share and each unit in GMH
Communities, LP (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 $49.0 million of
merger costs related to severance, legal, banking, accounting and finance costs,
of which approximately $8.9 million had not been paid as of September 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
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
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.




10




AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








Three
      Months EndedSeptember 30,
                      
                      
                      Nine
      Months EndedSeptember 30,2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007Total
      revenues
                      
                      $
                      72,134
                      
                      
                      $
                      63,687
                      
                      
                      $
                      212,979
                      
                      
                      $
                      201,267Net
      loss
                      
                      $
                      (10,016
                      )
                      
                      $
                      (9,617
                      )
                      
                      $
                      (2,695
                      )
                      
                      $
                      (14,724
                      )Net
      loss per share – basic
                      
                      $
                      (0.24
                      )
                      
                      $
                      (0.23
                      )
                      
                      $
                      (0.06
                      )
                      
                      $
                      (0.36
                      )Net
      loss per share – diluted
                      
                      $
                      (0.23
                      )
                      
                      $
                      (0.23
                      )
                      
                      $
                      (0.06
                      )
                      
                      $
                      (0.35
                      )




4.    Property
Dispositions and 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 such
date.  The Courtyards was sold in July for approximately $17.4
million, resulting in net cash proceeds of approximately $0.4 million, and The
Verge was sold in August for approximately $36.4 million, resulting in net
proceeds of approximately $3.6 million.  There was no loss recorded on
these dispositions for book purposes.




The
related net loss of the aforementioned properties is reflected in the
accompanying consolidated statements of operations as discontinued operations
for the three and nine months ended September 30, 2008.  Below is a
summary of the results of operations for The Courtyards and The Verge through
their respective disposition dates:




Three
      Months Ended September 30, 2008
                                    
                                    
                                    Nine
      Months Ended
                                      September
      30, 2008Total
      revenues
                                    
                                    $
                                    553
                                    
                                    
                                    $
                                    895Total
      operating expenses
                                    
                                    
                                    (473
                                    )
                                    
                                    
                                    (579
                                    )Operating
      income
                                    
                                    
                                    80
                                    
                                    
                                    
                                    316Total
      nonoperating expense
                                    
                                    
                                    (195
                                    )
                                    
                                    
                                    (339
                                    )Net
      loss
                                    
                                    $
                                    (115
                                    )
                                    
                                    $
                                    (23
                                    )




5.    Investments
in Wholly-owned Properties




Wholly-owned
properties consisted of the following:




September
      30, 2008
                          
                          
                          December
      31, 2007Land
                          
                          $
                          224,188
                          
                          
                          $
                          102,109Buildings
      and improvements
                          
                          
                          1,733,339
                          
                          
                          
                          768,551Furniture,
      fixtures and equipment
                          
                          
                          79,396
                          
                          
                          
                          42,225Construction
      in progress
                          
                          
                          41,330
                          
                          
                          
                          104,5402,078,253
                          
                          
                          
                          1,017,425Less
      accumulated depreciation
                          
                          
                          (99,163
                          )
                          
                          
                          (70,363
                          )Wholly-owned
      properties, net
                          
                          $
                          1,979,090
                          
                          
                          $
                          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
September 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
                                
                                LeaseCommencement
                                
                                Required
      DebtRepayment (1)
                                
                                September
      30, 2008
                                
                                
                                December
      31, 2007Texas
      A&M University System /Prairie View
      A&M University (2)
                                
                                2/1/96
                                
                                9/1/23
                                
                                $
                                38,713
                                
                                
                                $
                                38,499Texas
      A&M University System /Texas
      A&M International
                                
                                2/1/96
                                
                                9/1/23
                                
                                
                                6,120
                                
                                
                                
                                6,039Texas
      A&M University System /Prairie View A&M
      University (3)
                                
                                10/1/99
                                
                                8/31/25  /  8/31/28
                                
                                
                                24,178
                                
                                
                                
                                24,037University
      of Houston System /University of
      Houston (4)
                                
                                9/27/00
                                
                                8/31/35
                                
                                
                                34,892
                                
                                
                                
                                34,691103,903
                                
                                
                                
                                103,266Less
      accumulated amortization
                                
                                
                                
                                
                                
                                
                                (33,590
                                )
                                
                                
                                (30,361
                                )On-campus
      participating properties, net
                                
                                
                                
                                
                                
                                $
                                70,313
                                
                                
                                $
                                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 March 2006 acquisition of a portfolio of 13 student housing
properties (“the Royal Properties”) became exchangeable into an equal number of
shares of the Company’s common stock on March 1, 2007.  During the
nine months ended September 30, 2008, 343,182 Common Units were converted into
shares of the Company’s common stock.  As of September 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.  These joint ventures own and operate
the Company’s Callaway House, University Village at Sweet Home, University
Centre, and Villas at Chestnut Ridge owned off-campus properties.




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 $9.6 million investment in these two
joint ventures at September 30, 2008 is included in other assets in the
accompanying consolidated balance sheets, and the Company’s $0.9 million and
$1.0 million share in the loss from these two joint ventures for the three and
nine months ended September 30, 2008, respectively, 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 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 September 30, 2008
and December 31, 2007, respectively, is included in other assets in the
accompanying consolidated balance sheets, and the Company’s $0.2 million share
in the loss from this joint venture for both the three and nine months ended
September 30, 2008, 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:




September
      30, 2008
                              
                              
                              December
      31, 2007Debt
      secured by wholly-owned properties:Mortgage
      loans payable
                              
                              $
                              958,454
                              
                              
                              $
                              397,270Construction
      loans payable
                              
                              
                              114,280
                              
                              
                              
                              43,6521,072,734
                              
                              
                              
                              440,922Debt
      secured by on-campus participating properties:Mortgage
      loans payable
                              
                              
                              33,058
                              
                              
                              
                              33,156Bonds
      payable
                              
                              
                              53,275
                              
                              
                              
                              55,03086,333
                              
                              
                              
                              88,186Secured
      term loan
                              
                              
                              100,000
                              
                              
                              
                              —Revolving
      credit facility
                              
                              
                              —
                              
                              
                              
                              9,600Unamortized
      debt premiums
                              
                              
                              6,219
                              
                              
                              
                              4,988Unamortized
      debt discounts
                              
                              
                              (10,910
                              )
                              
                              
                              (666
                              )Total
      debt
                              
                              $
                              1,254,376
                              
                              
                              $
                              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 GMH’s student housing business
(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 $11.8 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 September 30, 2008, the total availability under
the facility balance (subject to the satisfaction of certain financial
covenants) totaled approximately $143.8 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 a
specified percentage of funds from operations for any four consecutive
quarters.  The financial covenants also include consolidated net worth
and leverage ratio tests.  As of September 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 September 30,
2008, the balance outstanding on the secured term loan was $100 million, bearing
interest at a rate of 4.49%.  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 September 30, 2008, 586,316 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 to him 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 nine months ended September
30, 2008 related to these awards.  A summary of the Company’s RSUs
under the Plan as of September 30, 2008 and changes during the nine months ended
September 30, 2008, is presented below:




Number
      ofRSUsOutstanding
      at December 31, 2007
                      
                      
                      18,786Granted
                      
                      
                      7,831Settled
      in common shares
                      
                      
                      (11,897
                      )Settled
      in cash
                      
                      
                      (3,164
                      )Outstanding
      at September 30, 2008
                      
                      
                      11,556




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 recipient
continues to be an employee of the Company.  A summary of the
Company’s RSAs under the Plan as of September 30, 2008 and changes during the
nine months ended September 30, 2008, is presented below:




Number
      ofRSAsNonvested
      balance at December 31, 2007
                  
                  
                  178,921Granted
                  
                  
                  151,492Vested
                  
                  
                  (32,353
                  )Forfeited
                  
                  
                  (15,257
                  )Nonvested
      balance at September 30, 2008
                  
                  
                  282,803




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
$0.4 million and $0.3 million for the three months ended September 30, 2008 and
2007, respectively, and $1.3 million and $0.8 million for the nine months ended
September 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 nine months ended September 30, 2007,
the Company recorded a compensation charge of approximately $0.5 million and
$10.4 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.  There was no compensation charge recorded in 2008 as a result
of these awards.




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’s student housing business, 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 September
30, 2008, approximately $30,000 of the $0.4 million gain remained unamortized
and will be amortized from accumulated other comprehensive income to earnings
during the fourth quarter 2008.




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 $2.1 million at September 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 September 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’s student housing
business on June 11, 2008 and the acquired properties are included in the
wholly-owned properties, net balance as of September 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












Quoted
      Prices inActive Markets forIdentical Assetsand
      Liabilities(Level 1)
                  
                  
                  Significant
      OtherObservable Inputs(Level 2)
                  
                  
                  SignificantUnobservableInputs
      (Level 3)
                  
                  
                  Balance
      atSeptember 30,2008Liability:Derivative
      financial instrument
                  
                  $
                  —
                  
                  
                  $
                  2,136
                  
                  
                  $
                  —
                  
                  
                  $
                  2,136




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 September 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 September 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 $15.7 million




At
September 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 $342.7 million as of September 30,
2008.  The Company serves as the guarantor of this debt which means it
agreed 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 certain non-recourse exceptions in connection with the
loans.




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 September 30,
                                                                          
                                                                          
                                                                          Nine
      Months Ended September 30,2008
                                                                          
                                                                          
                                                                          2007
                                                                          
                                                                          
                                                                          2008
                                                                          
                                                                          
                                                                          2007Wholly-Owned
      PropertiesRental
      revenues
                                                                          
                                                                          $
                                                                          61,274
                                                                          
                                                                          
                                                                          $
                                                                          30,425
                                                                          
                                                                          
                                                                          $
                                                                          131,047
                                                                          
                                                                          
                                                                          $
                                                                          86,241Interest
      income
                                                                          
                                                                          
                                                                          17
                                                                          
                                                                          
                                                                          
                                                                          74
                                                                          
                                                                          
                                                                          
                                                                          90
                                                                          
                                                                          
                                                                          
                                                                          245Total
      revenues from external customers
                                                                          
                                                                          
                                                                          61,291
                                                                          
                                                                          
                                                                          
                                                                          30,499
                                                                          
                                                                          
                                                                          
                                                                          131,137
                                                                          
                                                                          
                                                                          
                                                                          86,486Operating
      expenses before depreciation, amortization, andground/facility leases
                                                                          
                                                                          
                                                                          38,546
                                                                          
                                                                          
                                                                          
                                                                          16,307
                                                                          
                                                                          
                                                                          
                                                                          68,753
                                                                          
                                                                          
                                                                          
                                                                          41,024Ground/facility
      leases
                                                                          
                                                                          
                                                                          125
                                                                          
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          125
                                                                          
                                                                          
                                                                          
                                                                          —Interest
      expense
                                                                          
                                                                          
                                                                          14,994
                                                                          
                                                                          
                                                                          
                                                                          6,464
                                                                          
                                                                          
                                                                          
                                                                          28,942
                                                                          
                                                                          
                                                                          
                                                                          18,020Other
      nonoperating income
                                                                          
                                                                          
                                                                          486
                                                                          
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          486
                                                                          
                                                                          
                                                                          
                                                                          —Operating
      income before depreciation and amortization,minority interests and allocation of corporate overhead
                                                                          
                                                                          $
                                                                          8,112
                                                                          
                                                                          
                                                                          $
                                                                          7,728
                                                                          
                                                                          
                                                                          $
                                                                          33,803
                                                                          
                                                                          
                                                                          $
                                                                          27,442Depreciation
      and amortization
                                                                          
                                                                          $
                                                                          16,709
                                                                          
                                                                          
                                                                          $
                                                                          6,586
                                                                          
                                                                          
                                                                          $
                                                                          33,404
                                                                          
                                                                          
                                                                          $
                                                                          18,972Capital
      expenditures
                                                                          
                                                                          $
                                                                          48,788
                                                                          
                                                                          
                                                                          $
                                                                          48,903
                                                                          
                                                                          
                                                                          $
                                                                          118,778
                                                                          
                                                                          
                                                                          $
                                                                          92,863Total
      segment assets at September 30,
                                                                          
                                                                          $
                                                                          1,954,105
                                                                          
                                                                          
                                                                          $
                                                                          935,416
                                                                          
                                                                          
                                                                          $
                                                                          1,954,105
                                                                          
                                                                          
                                                                          $
                                                                          935,416On-Campus
      Participating PropertiesRental
      revenues
                                                                          
                                                                          $
                                                                          4,301
                                                                          
                                                                          
                                                                          $
                                                                          4,083
                                                                          
                                                                          
                                                                          $
                                                                          14,993
                                                                          
                                                                          
                                                                          $
                                                                          14,160Interest
      income
                                                                          
                                                                          
                                                                          47
                                                                          
                                                                          
                                                                          
                                                                          116
                                                                          
                                                                          
                                                                          
                                                                          179
                                                                          
                                                                          
                                                                          
                                                                          285Total
      revenues from external customers
                                                                          
                                                                          
                                                                          4,348
                                                                          
                                                                          
                                                                          
                                                                          4,199
                                                                          
                                                                          
                                                                          
                                                                          15,172
                                                                          
                                                                          
                                                                          
                                                                          14,445Operating
      expenses before depreciation, amortization, andground/facility
      leases
                                                                          
                                                                          
                                                                          3,091
                                                                          
                                                                          
                                                                          
                                                                          2,163
                                                                          
                                                                          
                                                                          
                                                                          7,533
                                                                          
                                                                          
                                                                          
                                                                          6,372Ground/facility
      leases
                                                                          
                                                                          
                                                                          383
                                                                          
                                                                          
                                                                          
                                                                          473
                                                                          
                                                                          
                                                                          
                                                                          1,110
                                                                          
                                                                          
                                                                          
                                                                          1,263Interest
      expense
                                                                          
                                                                          
                                                                          1,521
                                                                          
                                                                          
                                                                          
                                                                          1,548
                                                                          
                                                                          
                                                                          
                                                                          4,614
                                                                          
                                                                          
                                                                          
                                                                          4,683Operating
      (loss) income before depreciation and amortization,minority
      interests and allocation of corporate overhead
                                                                          
                                                                          $
                                                                          (647
                                                                          )
                                                                          
                                                                          $
                                                                          15
                                                                          
                                                                          
                                                                          $
                                                                          1,915
                                                                          
                                                                          
                                                                          $
                                                                          2,127Depreciation
      and amortization
                                                                          
                                                                          $
                                                                          1,087
                                                                          
                                                                          
                                                                          $
                                                                          1,068
                                                                          
                                                                          
                                                                          $
                                                                          3,230
                                                                          
                                                                          
                                                                          $
                                                                          3,194Capital
      expenditures
                                                                          
                                                                          $
                                                                          441
                                                                          
                                                                          
                                                                          $
                                                                          175
                                                                          
                                                                          
                                                                          $
                                                                          637
                                                                          
                                                                          
                                                                          $
                                                                          402Total
      segment assets at September 30,
                                                                          
                                                                          $
                                                                          82,615
                                                                          
                                                                          
                                                                          $
                                                                          86,206
                                                                          
                                                                          
                                                                          $
                                                                          82,615
                                                                          
                                                                          
                                                                          $
                                                                          86,206Development
      ServicesDevelopment
      and construction management fees
                                                                          
                                                                          $
                                                                          4,519
                                                                          
                                                                          
                                                                          $
                                                                          1,383
                                                                          
                                                                          
                                                                          $
                                                                          6,898
                                                                          
                                                                          
                                                                          $
                                                                          2,434Operating
      expenses
                                                                          
                                                                          
                                                                          2,226
                                                                          
                                                                          
                                                                          
                                                                          1,543
                                                                          
                                                                          
                                                                          
                                                                          6,671
                                                                          
                                                                          
                                                                          
                                                                          3,978Operating
      income (loss) before depreciation and amortization,minority
      interests and allocation of corporate overhead
                                                                          
                                                                          $
                                                                          2,293
                                                                          
                                                                          
                                                                          $
                                                                          (160
                                                                          )
                                                                          
                                                                          $
                                                                          227
                                                                          
                                                                          
                                                                          $
                                                                          (1,544
                                                                          )Total
      segment assets at September 30,
                                                                          
                                                                          $
                                                                          8,971
                                                                          
                                                                          
                                                                          $
                                                                          3,598
                                                                          
                                                                          
                                                                          $
                                                                          8,971
                                                                          
                                                                          
                                                                          $
                                                                          3,598Property
      Management ServicesProperty
      management fees from external customers
                                                                          
                                                                          $
                                                                          2,041
                                                                          
                                                                          
                                                                          $
                                                                          627
                                                                          
                                                                          
                                                                          $
                                                                          4,185
                                                                          
                                                                          
                                                                          $
                                                                          1,999Intersegment
      revenues
                                                                          
                                                                          
                                                                          2,421
                                                                          
                                                                          
                                                                          
                                                                          1,043
                                                                          
                                                                          
                                                                          
                                                                          5,006
                                                                          
                                                                          
                                                                          
                                                                          3,084Total
      revenues
                                                                          
                                                                          
                                                                          4,462
                                                                          
                                                                          
                                                                          
                                                                          1,670
                                                                          
                                                                          
                                                                          
                                                                          9,191
                                                                          
                                                                          
                                                                          
                                                                          5,083Operating
      expenses
                                                                          
                                                                          
                                                                          2,557
                                                                          
                                                                          
                                                                          
                                                                          644
                                                                          
                                                                          
                                                                          
                                                                          4,578
                                                                          
                                                                          
                                                                          
                                                                          2,014Operating
      income before depreciation and amortization,minority
      interests and allocation of corporate overhead
                                                                          
                                                                          $
                                                                          1,905
                                                                          
                                                                          
                                                                          $
                                                                          1,026
                                                                          
                                                                          
                                                                          $
                                                                          4,613
                                                                          
                                                                          
                                                                          $
                                                                          3,069Total
      segment assets at September 30,
                                                                          
                                                                          $
                                                                          4,407
                                                                          
                                                                          
                                                                          $
                                                                          1,851
                                                                          
                                                                          
                                                                          $
                                                                          4,407
                                                                          
                                                                          
                                                                          $
                                                                          1,851ReconciliationsTotal
      segment revenues
                                                                          
                                                                          $
                                                                          74,620
                                                                          
                                                                          
                                                                          $
                                                                          37,751
                                                                          
                                                                          
                                                                          $
                                                                          162,398
                                                                          
                                                                          
                                                                          $
                                                                          108,448Unallocated
      interest income earned on corporate cash
                                                                          
                                                                          
                                                                          179
                                                                          
                                                                          
                                                                          
                                                                          31
                                                                          
                                                                          
                                                                          
                                                                          779
                                                                          
                                                                          
                                                                          
                                                                          712Elimination
      of intersegment revenues
                                                                          
                                                                          
                                                                          (2,421
                                                                          )
                                                                          
                                                                          
                                                                          (1,043
                                                                          )
                                                                          
                                                                          
                                                                          (5,006
                                                                          )
                                                                          
                                                                          
                                                                          (3,084
                                                                          )Total
      consolidated revenues, including interest income
                                                                          
                                                                          $
                                                                          72,378
                                                                          
                                                                          
                                                                          $
                                                                          36,739
                                                                          
                                                                          
                                                                          $
                                                                          158,171
                                                                          
                                                                          
                                                                          $
                                                                          106,076Segment
      operating income before depreciation, amortization,minority
      interests and allocation of corporate overhead
                                                                          
                                                                          $
                                                                          11,663
                                                                          
                                                                          
                                                                          $
                                                                          8,609
                                                                          
                                                                          
                                                                          $
                                                                          40,558
                                                                          
                                                                          
                                                                          $
                                                                          31,094Depreciation
      and amortization, including amortization ofdeferred
      financing costs
                                                                          
                                                                          
                                                                          (18,980
                                                                          )
                                                                          
                                                                          
                                                                          (8,121
                                                                          )
                                                                          
                                                                          
                                                                          (38,882
                                                                          )
                                                                          
                                                                          
                                                                          (23,471
                                                                          )Net
      unallocated expenses relating to corporate overhead
                                                                          
                                                                          
                                                                          (4,883
                                                                          )
                                                                          
                                                                          
                                                                          (2,358
                                                                          )
                                                                          
                                                                          
                                                                          (9,648
                                                                          )
                                                                          
                                                                          
                                                                          (15,068
                                                                          )Loss
      from unconsolidated joint ventures
                                                                          
                                                                          
                                                                          (926
                                                                          )
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          (1,181
                                                                          )
                                                                          
                                                                          
                                                                          —Income
      tax provision
                                                                          
                                                                          
                                                                          (128
                                                                          )
                                                                          
                                                                          
                                                                          (576
                                                                          )
                                                                          
                                                                          
                                                                          (261
                                                                          )
                                                                          
                                                                          
                                                                          (696
                                                                          )Minority
      interests
                                                                          
                                                                          
                                                                          275
                                                                          
                                                                          
                                                                          
                                                                          77
                                                                          
                                                                          
                                                                          
                                                                          (198
                                                                          )
                                                                          
                                                                          
                                                                          309Loss
      from continuing operations
                                                                          
                                                                          $
                                                                          (12,979
                                                                          )
                                                                          
                                                                          $
                                                                          (2,369
                                                                          )
                                                                          
                                                                          $
                                                                          (9,612
                                                                          )
                                                                          
                                                                          $
                                                                          (7,832
                                                                          )Total
      segment assets at September 30,
                                                                          
                                                                          $
                                                                          2,050,098
                                                                          
                                                                          
                                                                          $
                                                                          1,027,071
                                                                          
                                                                          
                                                                          $
                                                                          2,050,098
                                                                          
                                                                          
                                                                          $
                                                                          1,027,071Unallocated
      corporate assets
                                                                          
                                                                          
                                                                          141,704
                                                                          
                                                                          
                                                                          
                                                                          5,346
                                                                          
                                                                          
                                                                          
                                                                          141,704
                                                                          
                                                                          
                                                                          
                                                                          5,346Total
      assets at September 30,
                                                                          
                                                                          $
                                                                          2,191,802
                                                                          
                                                                          
                                                                          $
                                                                          1,032,417
                                                                          
                                                                          
                                                                          $
                                                                          2,191,802
                                                                          
                                                                          
                                                                          $
                                                                          1,032,417




19




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
September 30, 2008, our property portfolio contained 86 student housing
properties with approximately 52,800 beds and approximately 17,500
apartment units, including 40 properties containing approximately 23,500 beds
and approximately 7,500 units added as a result of our acquisition of the
student housing business of GMH.  Our property portfolio consisted of
80 owned off-campus properties that are in close proximity to colleges and
universities, two ACE properties 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 September 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.




20




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 September 30,
2008, we provided third-party management and leasing services for 35 properties
(six of which we served as the third-party developer and construction manager)
that represented approximately 25,200 beds in approximately 9,100
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 September 30, 2008, our
total owned, joint venture and third-party managed portfolio included 142
properties with approximately 90,100 beds in approximately 30,200
units.




Third-Party
Development Services




Our
third-party development and construction management services as of September 30,
2008 consisted of four projects under contract and currently in progress with
fees ranging from $0.2 million to $7.6 million.  As of September 30,
2008, fees of approximately $5.5 million remained to be earned by us with
respect to these projects, which have scheduled completion dates of July 2009
through August 2010.




We
recently completed two projects with a total of 1,077 beds in 379 units, with
total fees of approximately $4.0 million.




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’s student housing
business.  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 in the third quarter.  See Note 4 in the
accompanying Notes to Consolidated Financial Statements for additional
information on the property dispositions.  The total estimated
purchase price of GMH was approximately $1,042.4 million which was paid as
follows: (i) the issuance of approximately $155.0 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 GMH common share 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) $49.0 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 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
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




Vista
del Sol:In August 2008, we completed the final stages of construction on
our first ACE property located in Tempe, Arizona, which contains 1,866 beds in
613 units and serves students attending Arizona State
University.  Total development costs incurred for the project were
approximately $137.5 million.




21




Villas
at Chestnut Ridge: In August 2008, we completed the final stages of
construction on this owned off-campus property located in Amherst, New York,
which contains 552 beds in 196 units and serves students attending the State
University of New York, Buffalo.  Total development costs incurred for
the project were approximately $34.8 million.




Barrett
Honors College:As of September 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 September
30, 2008, the project was approximately 36% complete, and we estimate that
remaining development costs will be approximately $82.5 million.  As
of September 30, 2008, we have funded 100% of the project’s development costs
and will fund the remaining development costs
internally.




22




Property
Operations




As
      of September 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
                                                                                            
                                                                                            2007
                                                                                            
                                                                                            Newark,
      NJ
                                                                                            
                                                                                            Rutgers
      University, NJIT, Essex CCC
                                                                                            
                                                                                            234
                                                                                            
                                                                                            83838.
      Sunnyside Commons (2)
                                                                                            
                                                                                            2008
                                                                                            
                                                                                            Morgantown,
      WV
                                                                                            
                                                                                            West
      Virginia University
                                                                                            
                                                                                            68
                                                                                            
                                                                                            16139.
      Pirate’s Place (2)
                                                                                            
                                                                                            2008
                                                                                            
                                                                                            Greenville,
      NC
                                                                                            
                                                                                            East
      Carolina University
                                                                                            
                                                                                            144
                                                                                            
                                                                                            52840.
      University Highlands (3)
                                                                                            
                                                                                            2008
                                                                                            
                                                                                            Reno,
      NV
                                                                                            
                                                                                            University
      of Nevada at Reno
                                                                                            
                                                                                            216
                                                                                            
                                                                                            73241.
      Jacob Heights I (3)
                                                                                            
                                                                                            2008
                                                                                            
                                                                                            Mankato,
      MN
                                                                                            
                                                                                            Minnesota
      State University
                                                                                            
                                                                                            42
                                                                                            
                                                                                            16242.
      Jacob Heights III (3)
                                                                                            
                                                                                            2008
                                                                                            
                                                                                            Mankato,
      MN
                                                                                            
                                                                                            Minnesota
      State University
                                                                                            
                                                                                            24
                                                                                            
                                                                                            96
  23
  PROPERTY
                                                                                                                                                                
                                                                                                                                                                YR ACQUIRED /
      DEVELOPED(1)
                                                                                                                                                                
                                                                                                                                                                LOCATION
                                                                                                                                                                
                                                                                                                                                                PRIMARY
      UNIVERSITY SERVED
                                                                                                                                                                
                                                                                                                                                                UNITS
                                                                                                                                                                
                                                                                                                                                                BEDSWholly-Owned
      properties:43.
      The Summit (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Mankato,
      MN
                                                                                                                                                                
                                                                                                                                                                Minnesota
      State University
                                                                                                                                                                
                                                                                                                                                                192
                                                                                                                                                                
                                                                                                                                                                67244.
      GrandMarc – Seven Corners (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Minneapolis,
      MN
                                                                                                                                                                
                                                                                                                                                                University
      of Minnesota
                                                                                                                                                                
                                                                                                                                                                186
                                                                                                                                                                
                                                                                                                                                                44045.
      University Village – Sacramento (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Sacramento,
      CA
                                                                                                                                                                
                                                                                                                                                                California
      State University – Sacramento
                                                                                                                                                                
                                                                                                                                                                250
                                                                                                                                                                
                                                                                                                                                                39446.
      Aztec Corner (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                San
      Diego, CA
                                                                                                                                                                
                                                                                                                                                                San
      Diego State University
                                                                                                                                                                
                                                                                                                                                                180
                                                                                                                                                                
                                                                                                                                                                60647.
      University Crossing (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Philadelphia,
      PA
                                                                                                                                                                
                                                                                                                                                                University
      of Pennsylvania / Drexel
                                                                                                                                                                
                                                                                                                                                                507
                                                                                                                                                                
                                                                                                                                                                102648.
      Campus Corner (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Bloomington,
      IN
                                                                                                                                                                
                                                                                                                                                                Indiana
      University
                                                                                                                                                                
                                                                                                                                                                256
                                                                                                                                                                
                                                                                                                                                                80049.
      Tower at 3rd
      (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Champaign,
      IL
                                                                                                                                                                
                                                                                                                                                                University
      of Illinois
                                                                                                                                                                
                                                                                                                                                                147
                                                                                                                                                                
                                                                                                                                                                29550.
      University Mills (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Cedar
      Falls, IA
                                                                                                                                                                
                                                                                                                                                                University
      of Northern Iowa
                                                                                                                                                                
                                                                                                                                                                121
                                                                                                                                                                
                                                                                                                                                                48151.
      Pirates Cove (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Greenville,
      NC
                                                                                                                                                                
                                                                                                                                                                East
      Carolina University
                                                                                                                                                                
                                                                                                                                                                264
                                                                                                                                                                
                                                                                                                                                                105652.
      University Manor (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Greenville,
      NC
                                                                                                                                                                
                                                                                                                                                                East
      Carolina University
                                                                                                                                                                
                                                                                                                                                                168
                                                                                                                                                                
                                                                                                                                                                60053.
      Brookstone Village (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Wilmington,
      NC
                                                                                                                                                                
                                                                                                                                                                UNC
      – Wilmington
                                                                                                                                                                
                                                                                                                                                                124
                                                                                                                                                                
                                                                                                                                                                23854.
      Campus Walk – Wilmington (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Wilmington,
      NC
                                                                                                                                                                
                                                                                                                                                                UNC
      – Wilmington
                                                                                                                                                                
                                                                                                                                                                289
                                                                                                                                                                
                                                                                                                                                                29055.
      Riverside Estates (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Cayce,
      SC
                                                                                                                                                                
                                                                                                                                                                University
      of South Carolina
                                                                                                                                                                
                                                                                                                                                                205
                                                                                                                                                                
                                                                                                                                                                70056.
      Cambridge at Southern (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Statesboro,
      GA
                                                                                                                                                                
                                                                                                                                                                Georgia
      Southern University
                                                                                                                                                                
                                                                                                                                                                228
                                                                                                                                                                
                                                                                                                                                                56457.
      Campus Club – Statesboro (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Statesboro,
      GA
                                                                                                                                                                
                                                                                                                                                                Georgia
      Southern University
                                                                                                                                                                
                                                                                                                                                                276
                                                                                                                                                                
                                                                                                                                                                98458.
      University Pines (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Statesboro,
      GA
                                                                                                                                                                
                                                                                                                                                                Georgia
      Southern University
                                                                                                                                                                
                                                                                                                                                                144
                                                                                                                                                                
                                                                                                                                                                55259.
      Lakeside (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Athens,
      GA
                                                                                                                                                                
                                                                                                                                                                University
      of Georgia
                                                                                                                                                                
                                                                                                                                                                244
                                                                                                                                                                
                                                                                                                                                                77660.
      The Club (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Athens,
      GA
                                                                                                                                                                
                                                                                                                                                                University
      of Georgia
                                                                                                                                                                
                                                                                                                                                                120
                                                                                                                                                                
                                                                                                                                                                48061.
      Pegasus Connection (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                McKay,
      FL
                                                                                                                                                                
                                                                                                                                                                Central
      Florida
                                                                                                                                                                
                                                                                                                                                                306
                                                                                                                                                                
                                                                                                                                                                93062.
      University Place (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Charlottesville,
      VA
                                                                                                                                                                
                                                                                                                                                                University
      of Virginia
                                                                                                                                                                
                                                                                                                                                                144
                                                                                                                                                                
                                                                                                                                                                52863.
      Southview (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Harrisonburg,
      VA
                                                                                                                                                                
                                                                                                                                                                James
      Madison University
                                                                                                                                                                
                                                                                                                                                                240
                                                                                                                                                                
                                                                                                                                                                96064.
      Stonegate (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Harrisonburg,
      VA
                                                                                                                                                                
                                                                                                                                                                James
      Madison University
                                                                                                                                                                
                                                                                                                                                                168
                                                                                                                                                                
                                                                                                                                                                67265.
      The Commons (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Harrisonburg,
      VA
                                                                                                                                                                
                                                                                                                                                                James
      Madison University
                                                                                                                                                                
                                                                                                                                                                132
                                                                                                                                                                
                                                                                                                                                                52866.
      University Gables (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Murfreesboro,
      TN
                                                                                                                                                                
                                                                                                                                                                Middle
      Tennessee State University
                                                                                                                                                                
                                                                                                                                                                168
                                                                                                                                                                
                                                                                                                                                                64867.
      Campus Ridge (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Johnson
      City, TN
                                                                                                                                                                
                                                                                                                                                                East
      Tennessee State University
                                                                                                                                                                
                                                                                                                                                                132
                                                                                                                                                                
                                                                                                                                                                52868.
      The Enclave I (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Bowling
      Green, OH
                                                                                                                                                                
                                                                                                                                                                Bowling
      Green State University
                                                                                                                                                                
                                                                                                                                                                120
                                                                                                                                                                
                                                                                                                                                                48069.
      Hawks Landing (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Oxford,
      OH
                                                                                                                                                                
                                                                                                                                                                Miami
      University of Ohio
                                                                                                                                                                
                                                                                                                                                                122
                                                                                                                                                                
                                                                                                                                                                48470.
      Willow Tree Apartments (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Ann
      Arbor, MI
                                                                                                                                                                
                                                                                                                                                                University
      of Michigan
                                                                                                                                                                
                                                                                                                                                                310
                                                                                                                                                                
                                                                                                                                                                56871.
      Willow Tree Towers (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Ann
      Arbor, MI
                                                                                                                                                                
                                                                                                                                                                University
      of Michigan
                                                                                                                                                                
                                                                                                                                                                163
                                                                                                                                                                
                                                                                                                                                                28372.
      Abbott Place (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                East
      Lansing, MI
                                                                                                                                                                
                                                                                                                                                                Michigan
      State University
                                                                                                                                                                
                                                                                                                                                                222
                                                                                                                                                                
                                                                                                                                                                65473.
      University Centre – Kalamazoo (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Kalamazoo,
      MI
                                                                                                                                                                
                                                                                                                                                                Western
      Michigan University
                                                                                                                                                                
                                                                                                                                                                232
                                                                                                                                                                
                                                                                                                                                                70074.
      University Meadows (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Mt.
      Pleasant, MI
                                                                                                                                                                
                                                                                                                                                                Central
      Michigan University
                                                                                                                                                                
                                                                                                                                                                184
                                                                                                                                                                
                                                                                                                                                                61675.
      Campus Way (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Tuscaloosa,
      AL
                                                                                                                                                                
                                                                                                                                                                University
      of Alabama
                                                                                                                                                                
                                                                                                                                                                196
                                                                                                                                                                
                                                                                                                                                                68476.
      Campus Walk – Oxford (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Oxford,
      MS
                                                                                                                                                                
                                                                                                                                                                University
      of Mississippi
                                                                                                                                                                
                                                                                                                                                                108
                                                                                                                                                                
                                                                                                                                                                43277.
      Campus Trails (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Starkville,
      MS
                                                                                                                                                                
                                                                                                                                                                Mississippi
      State University
                                                                                                                                                                
                                                                                                                                                                156
                                                                                                                                                                
                                                                                                                                                                48078.
      University Pointe (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Lubbock,
      TX
                                                                                                                                                                
                                                                                                                                                                Texas
      Tech University
                                                                                                                                                                
                                                                                                                                                                204
                                                                                                                                                                
                                                                                                                                                                68279.
      University Trails (3)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Lubbock,
      TX
                                                                                                                                                                
                                                                                                                                                                Texas
      Tech University
                                                                                                                                                                
                                                                                                                                                                240
                                                                                                                                                                
                                                                                                                                                                68480.
      Vista del Sol (4)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Tempe,
      AZ
                                                                                                                                                                
                                                                                                                                                                Arizona
      State University
                                                                                                                                                                
                                                                                                                                                                613
                                                                                                                                                                
                                                                                                                                                                1,86681.
      Villas at Chestnut Ridge (4)
                                                                                                                                                                
                                                                                                                                                                2008
                                                                                                                                                                
                                                                                                                                                                Amherst,
      NY
                                                                                                                                                                
                                                                                                                                                                State
      University of New York – Buffalo
                                                                                                                                                                
                                                                                                                                                                196
                                                                                                                                                                
                                                                                                                                                                55282.
      Barrett Honors College (5)
                                                                                                                                                                
                                                                                                                                                                2009
                                                                                                                                                                
                                                                                                                                                                Tempe,
      AZ
                                                                                                                                                                
                                                                                                                                                                Arizona
      State University
                                                                                                                                                                
                                                                                                                                                                601
                                                                                                                                                                
                                                                                                                                                                1,720Total
      wholly-owned properties
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                15,598
                                                                                                                                                                
                                                                                                                                                                48,312




24




PROPERTY
                                                  
                                                  YEAR ACQUIRED /
      DEVELOPED (1)
                                                  
                                                  LOCATION
                                                  
                                                  PRIMARY
      UNIVERSITY SERVED
                                                  
                                                  UNITS
                                                  
                                                  BEDSOn-campus
      participating properties:83.
      University Village – PVAMU
                                                  
                                                  1996
      / 97 / 98
                                                  
                                                  Prairie
      View, TX
                                                  
                                                  Prairie
      View A&M University
                                                  
                                                  612
                                                  
                                                  1,92084.
      University College – PVAMU
                                                  
                                                  2000
      / 2003
                                                  
                                                  Prairie
      View, TX
                                                  
                                                  Prairie
      View A&M University
                                                  
                                                  756
                                                  
                                                  1,47085.
      University Village – TAMIU
                                                  
                                                  1997
                                                  
                                                  Laredo,
      TX
                                                  
                                                  Texas
      A&M International University
                                                  
                                                  84
                                                  
                                                  25086.
      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
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  17,461
                                                  
                                                  52,831




(1)
                    As
      of September 30, 2008, the average age of our operating properties was
      approximately 9.2 years.(2)
                    Property
      was acquired in February 2008.(3)
                    GMH
      property acquired in June 2008.(4)
                    Construction
      was completed and property commenced operations in August
      2008.(5)
                    Currently
      under development with a scheduled completion date of August
      2009.




25




Results
of Operations




Comparison
of the Three Months Ended September 30, 2008 and September 30, 2007




The
following table presents our results of operations for the three months ended
September 30, 2008 and 2007, including the amount and percentage change in these
results between the two periods:




Three
      Months Ended September 30,2008
                              
                              
                              2007
                              
                              
                              Change
      ($)
                              
                              
                              Change
      (%)Revenues:Wholly-owned
      properties
                              
                              $
                              60,663
                              
                              
                              $
                              30,045
                              
                              
                              $
                              30,618
                              
                              
                              
                              101.9
                              %On-campus
      participating properties
                              
                              
                              4,301
                              
                              
                              
                              4,083
                              
                              
                              
                              218
                              
                              
                              
                              5.3
                              %Third
      party development services
                              
                              
                              4,519
                              
                              
                              
                              1,383
                              
                              
                              
                              3,136
                              
                              
                              
                              226.8
                              %Third
      party management services
                              
                              
                              2,041
                              
                              
                              
                              627
                              
                              
                              
                              1,414
                              
                              
                              
                              225.5
                              %Resident
      services
                              
                              
                              610
                              
                              
                              
                              380
                              
                              
                              
                              230
                              
                              
                              
                              60.5
                              %Total
      revenues
                              
                              
                              72,134
                              
                              
                              
                              36,518
                              
                              
                              
                              35,616
                              
                              
                              
                              97.5
                              %Operating
      expenses:Wholly-owned
      properties
                              
                              
                              38,812
                              
                              
                              
                              16,368
                              
                              
                              
                              22,444
                              
                              
                              
                              137.1
                              %On-campus
      participating properties
                              
                              
                              3,274
                              
                              
                              
                              2,317
                              
                              
                              
                              957
                              
                              
                              
                              41.3
                              %Third
      party development and management services
                              
                              
                              3,277
                              
                              
                              
                              1,484
                              
                              
                              
                              1,793
                              
                              
                              
                              120.8
                              %General
      and administrative
                              
                              
                              3,191
                              
                              
                              
                              2,286
                              
                              
                              
                              905
                              
                              
                              
                              39.6
                              %Depreciation
      and amortization
                              
                              
                              18,148
                              
                              
                              
                              7,797
                              
                              
                              
                              10,351
                              
                              
                              
                              132.8
                              %Ground/facility
      leases
                              
                              
                              508
                              
                              
                              
                              473
                              
                              
                              
                              35
                              
                              
                              
                              7.4
                              %Total
      operating expenses
                              
                              
                              67,210
                              
                              
                              
                              30,725
                              
                              
                              
                              36,485
                              
                              
                              
                              118.7
                              %Operating
      income
                              
                              
                              4,924
                              
                              
                              
                              5,793
                              
                              
                              
                              (869
                              )
                              
                              
                              (15.0
                              %)Nonoperating
      income and (expenses):Interest
      income
                              
                              
                              244
                              
                              
                              
                              221
                              
                              
                              
                              23
                              
                              
                              
                              10.4
                              %Interest
      expense
                              
                              
                              (17,022
                              )
                              
                              
                              (7,560
                              )
                              
                              
                              (9,462
                              )
                              
                              
                              125.2
                              %Amortization
      of deferred financing costs
                              
                              
                              (832
                              )
                              
                              
                              (324
                              )
                              
                              
                              (508
                              )
                              
                              
                              156.8
                              %Loss
      from unconsolidated joint ventures
                              
                              
                              (926
                              )
                              
                              
                              —
                              
                              
                              
                              (926
                              )
                              
                              
                              100.0
                              %Other
      nonoperating income
                              
                              
                              486
                              
                              
                              
                              —
                              
                              
                              
                              486
                              
                              
                              
                              100.0
                              %Total
      nonoperating expenses
                              
                              
                              (18,050
                              )
                              
                              
                              (7,663
                              )
                              
                              
                              (10,387
                              )
                              
                              
                              135.5
                              %Loss
      before income taxes, minority interests, anddiscontinuedoperations
                              
                              
                              (13,126
                              )
                              
                              
                              (1,870
                              )
                              
                              
                              (11,256
                              )
                              
                              
                              601.9
                              %Income
      tax provision
                              
                              
                              (128
                              )
                              
                              
                              (576
                              )
                              
                              
                              448
                              
                              
                              
                              (77.8
                              %)Minority
      interests
                              
                              
                              275
                              
                              
                              
                              77
                              
                              
                              
                              198
                              
                              
                              
                              257.1
                              %Loss
      from continuing operations
                              
                              
                              (12,979
                              )
                              
                              
                              (2,369
                              )
                              
                              
                              (10,610
                              )
                              
                              
                              447.9
                              %Discontinued
      operations:Loss
      attributable to discontinued operations
                              
                              
                              (115
                              )
                              
                              
                              —
                              
                              
                              
                              (115
                              )
                              
                              
                              100.0
                              %Net
      loss
                              
                              $
                              (13,094
                              )
                              
                              $
                              (2,369
                              )
                              
                              $
                              (10,725
                              )
                              
                              
                              452.7
                              %




Wholly-Owned
Properties Operations




Revenues
from our wholly-owned properties for the three months ended September 30, 2008
compared with the same period in 2007 increased by $30.6 million primarily due
to the acquisition of GMH’s student housing business in June 2008, the
acquisition of two properties during the first quarter 2008, the completion of
construction and opening of Vista del Sol and Villas at Chestnut Ridge in August
2008, and the completion of construction and opening of University Centre in
August 2007.  Operating expenses increased approximately $22.4 million
for the three months ended September 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 GMH’s
student housing business, including 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 were
sold in July and August 2008.  The sold properties’ net loss through
the date of disposition is reflected as discontinued operations for the three
months ended September 30, 2008.  For the three months ended September
30, 2008, the remaining 40 properties acquired from GMH contributed an
additional $25.6 million of revenues and an additional $19.3 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 2008, we completed construction
of and opened Vista del Sol, a 1,866-bed property serving students attending
Arizona State University and Villas at Chestnut Ridge, a 552-bed property
serving students attending SUNY-Buffalo.  Additionally, 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 $3.7 million of revenues and an additional $1.7
million of operating expenses during the three months ended September 30, 2008
as compared to the three months ended September 30,
2007.




26




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 September 30, 2008 and
2007.  These properties produced revenues of $31.4 million and $29.8
million during the three months ended September 30, 2008 and 2007, respectively,
an increase of $1.6 million.  This increase was primarily due to an
increase in average rental rates during the three months ended September 30,
2008 as compared to the same period in 2007, as well as the improved lease up
for the 2008/2009 academic year, which resulted in average occupancy rates
increasing to 95.2% during the three months ended September 30, 2008 from 94.9%
during the three months ended September 30, 2007.  Future revenues
will be dependent on our ability to maintain our current leases in effect for
the 2008/2009 academic year and our ability to obtain appropriate rental rates
and desired occupancy for the 2009/2010 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 $16.1 million for the
three months ended September 30, 2007 to $17.5 million for the three months
ended September 30, 2008, an increase of $1.4 million.  This increase
was primarily due to costs associated with the recent hurricane season, property
taxes, and utilities.  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 September 30, 2008 and 2007.  Revenues from our same store
on-campus participating properties increased to $4.3 million during the three
months ended September 30, 2008 from $4.1 million for the three months ended
September 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 70.0% during the three months ended September 30, 2007 to
65.6% for the three months ended September 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 $2.3 million for the three months
ended September 30, 2007 to $3.3 million for the three months ended September
30, 2008, an increase of $1.0 million.  This increase was primarily
due to costs associated with the recent hurricane season and
utilities.  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 $3.1 million from $1.4 million
during the three months ended September 30, 2007 to $4.5 million for the three
months ended September 30, 2008.  The increase as compared to the
prior year primarily related to the closing and commencement of construction at
Phase III of the University of California – Irvine project during the three
months ended September 30, 2008.   This new project contributed
approximately $3.9 million in additional third party development services
revenues during the three months ended September 30,
2008.  Additionally, we had six projects in progress during the three
months ended September 30, 2008 with an average contractual fee of approximately
$3.1 million, as compared to the three months ended September 30, 2007 in which
we had six projects in progress with an average contractual fee of $1.4
million.  We also experienced an increase in the percentage of
development and construction services completed during the respective
periods.  Of the total contractual fees for the projects in progress
during the respective periods, approximately 24.5% was recognized during the
three months ended September 30, 2008, compared to approximately 16.3% for the
three months ended September 30, 2007.  Closing of additional
third-party development services projects during 2008 is dependent upon the
Company’s university clients obtaining project financing, which has been
adversely affected by current capital market conditions.




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.




27




Third
Party Management Services Revenue




Third
party management services revenues increased by $1.4 million from $0.6 million
for the three months ended September 30, 2007 to $2.0 million for the three
months ended September 30, 2008.  This increase was primarily due to
an additional $1.0 million in management fees recognized during the three months
ended September 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 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 and new
contracts obtained since last year.




Third
Party Development and Management Services Expenses




Third
party development and management services expenses increased by $1.8 million,
from $1.5 million during the three months ended September 30, 2007, to $3.3
million for the three months ended September 30, 2008.  This increase
was primarily due to an increase in payroll and related costs as a result of an
increase in activity for potential ACE projects and new management contracts
assumed from GMH.  Third-party development and management services
expenses for the full year 2008 will be dependent on the level of awards we
pursue, the level of new management contracts obtained, 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 $0.9 million, from $2.3
million during the three months ended September 30, 2007, to $3.2 million for
the three months ended September 30, 2008.  This increase was
primarily due to transition and integration expenses related to the acquisition
of GMH and additional staffing, benefits, rent and public company costs related
to both the GMH acquisition and company growth incurred during the three months
ended September 30, 2008.  These increases were offset by a
compensation charge of $0.5 million recorded during the three months ended
September 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 $10.3 million, from $7.8 million during the three
months ended September 30, 2007 to $18.1 million for the three months ended
September 30, 2008.  This increase was primarily due to the
acquisition of the GMH student housing business in June 2008, the acquisition of
two properties during the first quarter 2008, the completion of construction and
opening of Vista del Sol and Villas at Chestnut Ridge in August 2008, and the
completion of construction and opening of University Centre in August
2007.   The GMH properties contributed an additional $9.0 million
to depreciation expense for the three months ended September 30, 2008, of which
$3.1 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 $9.4 million, from $7.6 million during the three months ended
September 30, 2007, to $17.0 million for the three months ended September 30,
2008.  This increase was primarily due to $598.8 million of mortgage
debt assumed from GMH in June 2008 at a weighted average rate of 5.43%
(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 $8.3 million of interest expense for the three months
ended September 30, 2008.  We also incurred an additional $1.1 million
of interest expense related to the senior secured term loan entered into in May
2008 to fund a portion of the cash consideration paid in our acquisition of
GMH.  An additional $0.7 million of interest expense was incurred
during the three months ended September 30, 2008 related to the loans for Vista
del Sol and Villas at Chestnut Ridge, which completed construction and were
placed into service in August 2008.  These increases were offset by a
decrease in interest expense of approximately $0.4 million related to the
company carrying no balance on its revolving credit facility during the three
months ended September 30, 2008, as well as a decrease of approximately $0.3
million associated with the pay-down of the construction loan for University
Centre in October 2007. 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 business as well as the senior
secured term loan entered into in May 2008.




28




Amortization
of Deferred Financing Costs




Amortization
of deferred financing costs increased $0.5 million, from $0.3 million during the
three months ended September 30, 2007, to $0.8 million for the three months
ended September 30, 2008.  This increase was primarily due to the
amortization of additional finance costs incurred to assume debt on properties
acquired from GMH and the senior secured term loan.  We anticipate
that amortization of deferred financing costs will increase for the full year
2008 due to debt assumed in connection with our acquisition of GMH’s student
housing business as well as the senior secured term loan entered into in May
2008.




Loss
from Unconsolidated Joint Ventures




Loss from
unconsolidated joint ventures represents our share of the net income (loss) from
the Hampton Roads military housing joint venture in which we have a minimal
economic interest, as well as our 10 % share of the income (loss) from two joint
ventures owning 21 properties formed or assumed as part of our acquisition of
GMH in June 2008.




The loss
from unconsolidated joint ventures of $0.9 million for the three months ended
September 30, 2008, was primarily due to the loss from our 15-property joint
venture formed with Fidelity as part of our acquisition of GMH.  The
joint venture recognized a net loss for the three months ended September 30,
2008 primarily because of the amortization recorded on the value assigned to
in-place leases on the joint venture formation date.  In addition,
this 15-property joint venture includes two properties located in Louisiana that
incurred significant maintenance costs during the three months ended September
30, 2008 associated with the recent hurricane season.




Other
Nonoperating Income




Other
nonoperating income of $0.5 million for the three months ended September 30,
2008 represents tax incentive amounts received in cash during the period related
to a property we acquired in February 2007 located in Ypsilanti,
Michigan.  Upon acquisition of this property, any future potential
benefit of such tax incentive was assumed from the seller.




Income
Tax Provision




The
company’s provision for income taxes decreased by $0.4 million, from $0.5
million for the three months ended September 30, 2007, to $0.1 million for the
three months ended September 30, 2008.  This decrease is primarily
related to the write-off of the Company’s deferred tax asset in the amount of
$0.5 million during the three months ended September 30, 2007.




Minority
Interests




The
variance in minority interests was primarily due to the Company being in a
greater loss position for the three months ended September 30, 2008 as compared
to the three months ended September 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.




29


Comparison
of the Nine Months Ended September 30, 2008 and September 30, 2007




The
following table presents our results of operations for the nine months ended
September 30, 2008 and 2007, including the amount and percentage change in these
results between the two periods:




Nine
      Months Ended September 30,2008
                  
                  
                  2007
                  
                  
                  Change
      ($)
                  
                  
                  Change
      (%)Revenues:Wholly-owned
      properties
                  
                  $
                  129,638
                  
                  
                  $
                  85,197
                  
                  
                  $
                  44,441
                  
                  
                  
                  52.2
                  %On-campus
      participating properties
                  
                  
                  14,993
                  
                  
                  
                  14,160
                  
                  
                  
                  833
                  
                  
                  
                  5.9
                  %Third
      party development services
                  
                  
                  6,898
                  
                  
                  
                  2,434
                  
                  
                  
                  4,464
                  
                  
                  
                  183.4
                  %Third
      party management services
                  
                  
                  4,185
                  
                  
                  
                  1,999
                  
                  
                  
                  2,186
                  
                  
                  
                  109.4
                  %Resident
      services
                  
                  
                  1,409
                  
                  
                  
                  1,044
                  
                  
                  
                  365
                  
                  
                  
                  35.0
                  %Total
      revenues
                  
                  
                  157,123
                  
                  
                  
                  104,834
                  
                  
                  
                  52,289
                  
                  
                  
                  49.9
                  %Operating
      expenses:Wholly-owned
      properties
                  
                  
                  69,435
                  
                  
                  
                  41,276
                  
                  
                  
                  28,159
                  
                  
                  
                  68.2
                  %On-campus
      participating properties
                  
                  
                  8,068
                  
                  
                  
                  6,842
                  
                  
                  
                  1,226
                  
                  
                  
                  17.9
                  %Third
      party development and management services
                  
                  
                  7,713
                  
                  
                  
                  3,925
                  
                  
                  
                  3,788
                  
                  
                  
                  96.5
                  %General
      and administrative
                  
                  
                  8,562
                  
                  
                  
                  15,804
                  
                  
                  
                  (7,242
                  )
                  
                  
                  (45.8
                  %)Depreciation
      and amortization
                  
                  
                  37,291
                  
                  
                  
                  22,535
                  
                  
                  
                  14,756
                  
                  
                  
                  65.5
                  %Ground/facility
      leases
                  
                  
                  1,235
                  
                  
                  
                  1,263
                  
                  
                  
                  (28
                  )
                  
                  
                  (2.2
                  %)Total
      operating expenses
                  
                  
                  132,304
                  
                  
                  
                  91,645
                  
                  
                  
                  40,659
                  
                  
                  
                  44.4
                  %Operating
      income
                  
                  
                  24,819
                  
                  
                  
                  13,189
                  
                  
                  
                  11,630
                  
                  
                  
                  88.2
                  %Non-operating
      income and (expenses):Interest
      income
                  
                  
                  1,048
                  
                  
                  
                  1,242
                  
                  
                  
                  (194
                  )
                  
                  
                  (15.6
                  %)Interest
      expense
                  
                  
                  (32,734
                  )
                  
                  
                  (20,940
                  )
                  
                  
                  (11,794
                  )
                  
                  
                  56.3
                  %Amortization
      of deferred financing costs
                  
                  
                  (1,591
                  )
                  
                  
                  (936
                  )
                  
                  
                  (655
                  )
                  
                  
                  70.0
                  %Loss
      from unconsolidated joint ventures
                  
                  
                  (1,181
                  )
                  
                  
                  —
                  
                  
                  
                  (1,181
                  )
                  
                  
                  100.0
                  %Other
      nonoperating income
                  
                  
                  486
                  
                  
                  
                  —
                  
                  
                  
                  486
                  
                  
                  
                  100.0
                  %Total
      non-operating expenses
                  
                  
                  (33,972
                  )
                  
                  
                  (20,634
                  )
                  
                  
                  (13,338
                  )
                  
                  
                  64.6
                  %Loss
      before taxes, minority interests, and discontinuedoperations
                  
                  
                  (9,153
                  )
                  
                  
                  (7,445
                  )
                  
                  
                  (1,708
                  )
                  
                  
                  22.9
                  %Income
      tax provision
                  
                  
                  (261
                  )
                  
                  
                  (696
                  )
                  
                  
                  435
                  
                  
                  
                  (62.5
                  %)Minority
      interests
                  
                  
                  (198
                  )
                  
                  
                  309
                  
                  
                  
                  (507
                  )
                  
                  
                  (164.1
                  %)Loss
      from continuing operations
                  
                  
                  (9,612
                  )
                  
                  
                  (7,832
                  )
                  
                  
                  (1,780
                  )
                  
                  
                  22.7
                  %Discontinued
      operations:Loss
      attributable to discontinued operations
                  
                  
                  (23
                  )
                  
                  
                  —
                  
                  
                  
                  (23
                  )
                  
                  
                  100.0
                  %Net
      loss
                  
                  $
                  (9,635
                  )
                  
                  $
                  (7,832
                  )
                  
                  $
                  (1,803
                  )
                  
                  
                  23.0
                  %




Wholly-Owned
Properties Operations




Revenues
from our wholly-owned properties for the nine months ended September 30, 2008
compared with the same period in 2007 increased by $44.4 million primarily due
to the acquisition of the GMH student housing business in June 2008, the
acquisition of two properties during the first quarter 2008, the acquisition of
four properties during the first quarter 2007, the completion of construction
and opening of Vista del Sol and Villas at Chestnut Ridge in August 2008, and
the completion of construction and opening of University Centre in August 2007.
Operating expenses increased approximately $28.2 million for the nine months
ended September 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 business, including 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 were sold in July and
August 2008. The sold properties’ net loss through the date of disposition is
reflected as discontinued operations for the nine months ended September 30,
2008.  For the nine months ended September 30, 2008, the remaining 40
properties acquired from GMH contributed an additional $31.7 million of revenues
and an additional $21.6 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 2008, we completed construction of and opened
Vista del Sol and Villas at Chestnut Ridge.  Additionally, in August
2007, we completed construction of and opened University
Centre.  These non-GMH new properties contributed an additional $10.1
million of revenues and an additional $4.7 million of operating expenses during
the nine months ended September 30, 2008 as compared to the nine months ended
September 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 nine month periods ended September 30, 2008 and
2007.  These properties produced revenues of $79.3 million and $76.3
million during the nine months ended September 30, 2008 and 2007, respectively,
an increase of $3.0 million.  This increase was primarily due to an
increase in average rental rates during the nine months ended September 30, 2008
as compared to the same period in 2007, as well as the improved lease up for the
2008/09 academic year, which resulted in average occupancy rates increasing to
96.8% during the nine months ended September 30, 2008 from 96.4% during the nine
months ended September 30, 2007.




At these
existing properties, operating expenses increased from $35.5 million for the
nine months ended September 30, 2007 to $37.4 million for the nine months ended
September 30, 2008, an increase of $1.9 million.  This increase was
primarily due to marketing costs, costs associated with the recent hurricane
season, property taxes, and utilities.




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 nine month periods
ended September 30, 2008 and 2007.  Revenues from our same store
on-campus participating properties increased to $15.0 million during the nine
months ended September 30, 2008 from $14.2 million for the nine months ended
September 30, 2007, an increase of $0.8 million.  This increase was
primarily due to an increase in average rental rates, offset by a decrease in
average occupancy from 72.1% during the nine months ended September 30, 2007 to
66.9% for the nine months ended September 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 $6.8 million for the nine months
ended September 30, 2007 to $8.1 million for the nine months ended September 30,
2008, an increase of $1.3 million.  This increase was primarily due to
costs associated with the recent hurricane season.




Third
Party Development Services Revenue




Third
party development services revenue increased by $4.5 million from $2.4 million
for the nine months ended September 30, 2007 to $6.9 million for the nine months
ended September 30, 2008.  The increase as compared to the prior year
primarily related to the closing of and commencement of construction at Phase
III of the University of California – Irvine project during the three months
ended September 30, 2008.   This new project contributed
approximately $3.9 million in additional third party development services
revenues during the nine months ended September 30,
2008.  Additionally, we had six projects in progress during the nine
months ended September 30, 2008 with an average contractual fee of approximately
$3.1 million, as compared to the nine months ended September 30, 2007 in which
we had six projects in progress with an average contractual fee of $1.4
million.  We also experienced an increase in the percentage of
development and construction services completed during the respective
periods.  Of the total contractual fees for the projects in progress
during the respective periods, approximately 37.1% was recognized during the
nine months ended September 30, 2008, compared to approximately 28.2% for the
nine months ended September 30, 2007.




Third
Party Management Services Revenue




Third
party management services revenues increased by $2.2 million from $2.0 million
for the nine months ended September 30, 2007 to $4.2 million for the nine months
ended September 30, 2008.  This increase was primarily due to an
additional $1.2 million in management fees recognized during the nine months
ended September 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 was 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 $3.8 million,
from $3.9 million during the nine months ended September 30, 2007, to $7.7
million for the nine months ended September 30, 2008.  This increase
was primarily due to an increase in payroll and related costs as a result of an
increase in activity for potential ACE projects and new management contracts
assumed from GMH.




31




General
and Administrative




General
and administrative expenses decreased approximately $7.2 million, from $15.8
million during the nine months ended September 30, 2007, to $8.6 million for the
nine months ended September 30, 2008.  This decrease was primarily due
to a $10.4 million compensation charge recorded during the nine months ended
September 30, 2007 related to the Company’s 2004 Outperformance Bonus
Plan.  This decrease was offset by additional transition and
integration expenses related to the acquisition of GMH and additional staffing,
benefits, rent and public company costs related to both the GMH acquisition and
company growth experienced during the nine months ended September 30,
2008.




Depreciation
and Amortization




Depreciation
and amortization increased by $14.8 million, from $22.5 million during the nine
months ended September 30, 2007 to $37.3 million during the nine months ended
September 30, 2008.  This increase was primarily due to the
acquisition of the GMH student housing business in June 2008, the acquisition of
two properties during the first quarter 2008, the completion of construction and
opening of Vista del Sol and Villas at Chestnut Ridge in August 2008, and the
completion of construction and opening of University Centre in August
2007.  The GMH properties contributed an additional $12.0 million of
depreciation expense for the period of June 11, 2008 to September 30, 2008, of
which $4.3 million related to the valuation assigned to in-place leases for such
properties.




Interest
Expense




Interest
expense increased $11.8 million, from $20.9 million during the nine months ended
September 30, 2007 to $32.7 million for the nine months ended September 30,
2008.  This increase was primarily due to $598.8 million of mortgage
debt assumed from GMH in June 2008 at a weighted average rate of 5.43%
(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 $10.2 million of interest expense for the nine months
ended September 30, 2008.  We also incurred an additional $1.4 million
of interest expense related to the senior secured term loan entered into in May
2008 to fund a portion of the cash consideration paid in our acquisition of
GMH.  An additional $0.7 million of interest expense was incurred
during the nine months ended September 30, 2008 related to the loans for Vista
del Sol and Villas at Chestnut Ridge, which completed construction and were
placed into service in August 2008.  Acquisitions during 2007 and 2008
also contributed an additional $0.8 million of interest expense for the nine
months ended September 30, 2007.  These increases were offset by a
decrease in interest expense of approximately $0.3 million associated with the
pay-down of the construction loan for University Centre in October 2007, as well
as an increase in capitalized interest of approximately $0.3 million for the
nine months ended September 30, 2008 due to increased activity in our owned
development projects.




Amortization
of Deferred Financing Costs




Amortization
of deferred financing costs increased $0.7 million, from $0.9 million during the
nine months ended September 30, 2007, to $1.6 million for the nine months ended
September 30, 2008.  This increase was primarily due to the
amortization of additional finance costs incurred to assume debt on properties
acquired from GMH and the senior secured term loan.




Other
Nonoperating Income




Other
nonoperating income of $0.5 million for the nine months ended September 30, 2008
represents tax incentive amounts received in cash during the three months ended
September 30, 2008 related to a property we acquired in February 2007 located in
Ypsilanti, Michigan.




Income
Tax Provision




The
company’s provision for income taxes decreased by $0.4 million, from $0.7
million for the nine months ended September 30, 2007 to $0.3 million for the
nine months ended September 30, 2008.  This decrease was primarily
related to the write-off of the Company’s deferred tax asset in the amount of
$0.5 million during the three months ended September 30, 2007.




Loss
from Unconsolidated Joint Ventures




The loss
from unconsolidated joint ventures of $1.2 million for the nine months ended
September 30, 2008, was primarily due to the loss from the 15-property joint
venture formed with Fidelity as part of our acquisition of GMH.  The
joint venture recognized a net loss for the nine months ended September 30, 2008
primarily because of the amortization recorded on the value assigned to in-place
leases on the joint venture formation date.  In addition, this
15-property joint venture includes two properties located in Louisiana that
incurred significant maintenance costs during the nine months ended September
30, 2008 associated with the recent hurricane season.




32




Minority
Interests




The
variance in minority interests was primarily due to an increase in equity
interests of the Operating Partnership owned by the Company.  This
increase was a result of the October 2007 and April 2008 equity offerings which
consisted of the sale of an aggregate of 12.7 million shares of the Company’s
common stock and the issuance of 5.4 million shares of the Company’s common
stock in June 2008 as partial consideration for the acquisition of
GMH.




Cash
Flows




Comparison
of Nine Months Ended September 30, 2008 and September 30, 2007




Operating
Activities




For the
nine months ended September 30, 2008, net cash provided by operating activities
was approximately $23.0 million, as compared to $11.7 million for the nine
months ended September 30, 2007, an increase of $11.3 million.  This
increase was primarily due to a $6.7 million cash payment in August 2007 of
awards under the 2004 Outperformance Bonus Plan.  In addition, we made
a partial payment in March 2007 of secured promissory notes and cash retained by
us related to acquisition of the Royal Properties in March 2006.




Investing
Activities




Investing
activities utilized $413.8 million and $136.8 million for the nine months ended
September 30, 2008 and 2007, respectively.  The increase in cash
utilized in investing activities during the nine months ended September 30, 2008
related primarily to a $246.4 million increase in the use of cash to acquire
properties and land.  We acquired four properties during the first
nine months of 2007 as compared to a total of 44 properties acquired during the
first nine months of 2008.  In June 2008, we used approximately $276.0
million of cash to acquire the GMH student housing business, including 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 during the nine months ended
September 30, 2008, two of which were completed and opened for occupancy in
August 2008, while two wholly-owned properties were under development throughout
the first nine 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 and contributed 15 GMH properties to the joint venture in
exchange for cash and a 10% minority interest in the joint
venture.  These increases in cash utilized in investing activities
were offset by proceeds received from the disposition of two properties in July
and August 2008.  For the nine months ended September 30, 2008 and
2007, our cash utilized in investing activities was comprised of the
following:




Nine
      Months Ended September 30,2008
                  
                  
                  2007Property
      and land acquisitions
                  
                  $
                  (289,576
                  )
                  
                  $
                  (43,183
                  )Net
      proceeds from dispositions of real estate
                  
                  
                  4,418
                  
                  
                  
                  —Investments
      in unconsolidated joint ventures
                  
                  
                  (10,610
                  )
                  
                  
                  —Capital
      expenditures for on-campus participating properties
                  
                  
                  (637
                  )
                  
                  
                  (402
                  )Capital
      expenditures for wholly-owned properties
                  
                  
                  (8,727
                  )
                  
                  
                  (7,097
                  )Investment
      in wholly-owned properties under development
                  
                  
                  (106,825
                  )
                  
                  
                  (85,766
                  )Purchase
      of corporate furniture, fixtures, and equipment
                  
                  
                  (1,875
                  )
                  
                  
                  (347
                  )Distributions
      received from unconsolidated joint venture
                  
                  
                  15
                  
                  
                  
                  —Total
                  
                  $
                  (413,817
                  )
                  
                  $
                  (136,795
                  )




33


Financing
Activities




Cash
provided by financing activities totaled $416.1 million for the nine months
ended September 30, 2008 as compared to $56.8 million of cash provided by
financing activities during the nine months ended September 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, the proceeds of which 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 $40.0 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 both opened 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) a
$57.5 million decrease in proceeds (net of paydowns) received from our revolving
credit facility resulting from using $40.7 million of our April 2008 equity
offering proceeds to paydown the revolving credit facility; (iii) a $12.5
million increase in distributions to common and restricted stockholders as a
result of our October 2007 and April 2008 equity offerings and the issuance of
common stock as partial consideration for the acquisition of GMH; and (iv) a
$4.1 million increase in debt issuance and assumption costs associated with
mortgage debt assumed in connection with acquisitions 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.




34




The
following table reflects the amounts included in our consolidated financial
statements for the three and nine months ended September 30, 2008 and
2007:




Three
      Months Ended September 30,
                        
                        
                        Nine
      Months Ended September 30,2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Revenues
                        
                        $
                        4,301
                        
                        
                        $
                        4,083
                        
                        
                        $
                        14,993
                        
                        
                        $
                        14,160Direct operating
      expenses (1)
                        
                        
                        (3,091
                        )
                        
                        
                        (2,163
                        )
                        
                        
                        (7,533
                        )
                        
                        
                        (6,372
                        )Amortization
                        
                        
                        (1,087
                        )
                        
                        
                        (1,068
                        )
                        
                        
                        (3,230
                        )
                        
                        
                        (3,194
                        )Amortization
      of deferred financing costs
                        
                        
                        (46
                        )
                        
                        
                        (48
                        )
                        
                        
                        (139
                        )
                        
                        
                        (141
                        )Ground/facility
      leases (2)
                        
                        
                        (383
                        )
                        
                        
                        (473
                        )
                        
                        
                        (1,110
                        )
                        
                        
                        (1,263
                        )Net
      operating (loss) income
                        
                        
                        (306
                        )
                        
                        
                        331
                        
                        
                        
                        2,981
                        
                        
                        
                        3,190Interest
      income
                        
                        
                        47
                        
                        
                        
                        116
                        
                        
                        
                        179
                        
                        
                        
                        285Interest expense
      (3)
                        
                        
                        (1,521
                        )
                        
                        
                        (1,549
                        )
                        
                        
                        (4,614
                        )
                        
                        
                        (4,683
                        )Net
      loss
                        
                        $
                        (1,780
                        )
                        
                        $
                        (1,102
                        )
                        
                        $
                        (1,454
                        )
                        
                        $
                        (1,208
                        )




(1)
                    Excludes
      property management fees of $0.2 million for both the three month periods
      ended September 30, 2008 and 2007, and $0.7 million for both the nine
      month periods ended September 30, 2008 and 2007. 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 September 30, 2008 and 2007, and $6.2
      million and $6.3 million for the nine months ended September 30, 2008 and
      2007,
respectively.




Liquidity
and Capital Resources




Cash Balances and Liquidity




As of
September 30, 2008, excluding our on-campus participating properties, we had
$60.6 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
$100.7 million of the offering proceeds to fund the cash consideration paid in
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 September 30, 2008
also included $0.6 million of funds held in escrow in connection with potential
development opportunities.




As of
September 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 September 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 September 30, 2008, (iii) development costs
for Barrett Honors College over the next 12 months, estimated to be
approximately $88 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 (a) using the remaining proceeds
from our April 2008 equity offering, (b) potentially disposing of properties,
(c) borrowing under our revolving credit facility, and (d) 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 numerous 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.




35




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 September 30, 2008, the total availability under the facility balance
(subject to the satisfaction of certain financial covenants) totaled
approximately $143.8 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 a specified
percentage 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 September 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 September 30, 2008, the balance
outstanding on the secured term loan was $100 million, bearing interest at a
rate of 4.49%.  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.




36




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 September 30, 2008, we have deferred approximately
$4.5 million in pre-development costs related to third-party and owned
development projects that have not yet commenced construction.




Indebtedness




As of
September 30, 2008, we had approximately $1,259.1 million of outstanding
consolidated indebtedness (excluding net unamortized debt discounts and debt
premiums of approximately $10.9 million and $6.2 million, respectively),
comprised of a $100.0 million balance on our secured term loan, $1,072.7 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 $53.3 million in bond issuances secured by three of our on-campus
participating properties.  The weighted average interest rate on our
consolidated indebtedness as of September 30, 2008 was 5.69%.  As of
September 30, 2008, approximately 17.1% 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 $1,072.7 million of wholly-owned mortgage
and construction debt was 5.69% as of September 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.




In August
2008, we completed the final stages of construction on Vista del Sol, an ACE
property.  The development and construction of Vista del Sol was
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 September 30, 2008, the balance
outstanding on the construction loan totaled $88.0 million, bearing interest at
a weighted average rate of 4.87%.




In August
2008, we completed the final stages of construction on Villas at Chestnut Ridge,
an owned off-campus property.  The development and construction of
Villas at Chestnut was 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 September 30,
2008, the balance outstanding on the construction loan totaled $26.3 million,
bearing interest at a weighted average rate of 3.74%.




On-Campus
Participating Properties




Three of
our on-campus participating properties are 100% financed with $53.3 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 September 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.




37




The
weighted average interest rate of the indebtedness encumbering our on-campus
participating properties was 7.17% at September 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
$340.7 million as of September 30, 2008.  We serve as guarantor of
this debt which means we agree 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 certain non-recourse exceptions in
connection with the loans.




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.




38




The
following table presents a reconciliation of our FFO to our net
loss:




Three
      Months Ended September 30,
                    
                    
                    Nine
      Months Ended September 30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Net
      loss
                    
                    $
                    (13,094
                    )
                    
                    $
                    (2,369
                    )
                    
                    $
                    (9,635
                    )
                    
                    $
                    (7,832
                    )Minority
      interests
                    
                    
                    (275
                    )
                    
                    
                    (77
                    )
                    
                    
                    198
                    
                    
                    
                    (309
                    )Loss
      from unconsolidated joint ventures
                    
                    
                    926
                    
                    
                    
                    —
                    
                    
                    
                    1,181
                    
                    
                    
                    —FFO from
      unconsolidated joint ventures (1)
                    
                    
                    (216
                    )
                    
                    
                    —
                    
                    
                    
                    (355
                    )
                    
                    
                    —Real
      estate related depreciation and amortization:Total
      depreciation and amortization
                    
                    
                    17,995
                    
                    
                    
                    7,797
                    
                    
                    
                    37,138
                    
                    
                    
                    22,535Corporate
      furniture, fixtures, and equipmentdepreciation
                    
                    
                    (224
                    )
                    
                    
                    (122
                    )
                    
                    
                    (576
                    )
                    
                    
                    (391
                    )Funds from
      operations (“FFO”)  (2)
                    
                    $
                    5,112
                    
                    
                    $
                    5,229
                    
                    
                    $
                    27,951
                    
                    
                    $
                    14,003FFO per share –
      diluted  (2)
                    
                    $
                    0.12
                    
                    
                    $
                    0.21
                    
                    
                    $
                    0.76
                    
                    
                    $
                    0.55Weighted
      average common shares outstanding –diluted
                    
                    
                    43,860,667
                    
                    
                    
                    25,493,713
                    
                    
                    
                    36,827,477
                    
                    
                    
                    25,437,569




(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 nine months ended September 30, 2007, we recorded a
      compensation charge and related tax impact of approximately $1.0million
      and $10.9 million, or $0.04 and $0.43 per fully diluted share,
      respectively, related to the 2004 Outperformance Bonus
      Plan.  Excluding this compensation charge and related tax
      impact, FFO for the three and nine months ended September 30, 2007 would
      have been $6.2 million and $24.9 million, or $0.24 and $0.98 per fully
      diluted share,
respectively.




While our
on-campus participating properties contributed $4.3 million and $4.1 to our
revenues for the three months ended September 30, 2008 and 2007, respectively,
and $15.0 million and $14.2 million to our revenues for the nine months ended
September 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.




39




Funds
From Operations—Modified for Operational Performance of On-Campus Participating
Properties:




Three
      Months Ended September 30,
                                  
                                  
                                  Nine
      Months Ended September 30,2008
                                  
                                  
                                  2007
                                  
                                  
                                  2008
                                  
                                  
                                  2007Funds
      from operations
                                  
                                  $
                                  5,112
                                  
                                  
                                  $
                                  5,229
                                  
                                  
                                  $
                                  27,951
                                  
                                  
                                  $
                                  14,003Elimination
      of operations of on-campus participating properties and unconsolidated
      joint venture:Net
      loss from on-campus participating  properties
                                  
                                  
                                  1,780
                                  
                                  
                                  
                                  1,102
                                  
                                  
                                  
                                  1,454
                                  
                                  
                                  
                                  1,208Amortization
      of investment in on-campusparticipating
      properties
                                  
                                  
                                  (1,087
                                  )
                                  
                                  
                                  (1,068
                                  )
                                  
                                  
                                  (3,230
                                  )
                                  
                                  
                                  (3,194
                                  )FFO
      from unconsolidated joint venture (1)
                                  
                                  
                                  (22
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  187
                                  
                                  
                                  
                                  —5,783
                                  
                                  
                                  
                                  5,263
                                  
                                  
                                  
                                  26,362
                                  
                                  
                                  
                                  12,017Modifications
      to reflect operational performance of on-campus participating
      properties:Our share of net
      cash flow (2)
                                  
                                  
                                  383
                                  
                                  
                                  
                                  473
                                  
                                  
                                  
                                  1,110
                                  
                                  
                                  
                                  1,263Management
      fees
                                  
                                  
                                  206
                                  
                                  
                                  
                                  189
                                  
                                  
                                  
                                  696
                                  
                                  
                                  
                                  652Impact
      of on-campus participating properties
                                  
                                  
                                  589
                                  
                                  
                                  
                                  662
                                  
                                  
                                  
                                  1,806
                                  
                                  
                                  
                                  1,915Funds from
      operations – modified for operational performance of on-campus
      participating properties (“FFOM”)  (3)
                                  
                                  $
                                  6,372
                                  
                                  
                                  $
                                  5,925
                                  
                                  
                                  $
                                  28,168
                                  
                                  
                                  $
                                  13,932FFOM per share –
      diluted  (3)
                                  
                                  $
                                  0.15
                                  
                                  
                                  $
                                  0.23
                                  
                                  
                                  $
                                  0.76
                                  
                                  
                                  $
                                  0.55Weighted
      average common shares outstanding –diluted
                                  
                                  
                                  43,860,667
                                  
                                  
                                  
                                  25,493,713
                                  
                                  
                                  
                                  36,827,477
                                  
                                  
                                  
                                  25,437,569




(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 nine months ended September 30, 2007, we recorded a
      compensation charge and related tax impact of approximately $1.0 million
      and $10.9 million, or $0.04 and $0.43 per fully diluted share,
      respectively, related to the 2004 Outperformance Bonus
      Plan.  Excluding this compensation charge and related tax
      impact, FFOM for the three and nine months ended September 30, 2007 would
      have been $6.9 million and $24.8 million, or $0.27 and $0.98 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.




40


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.




41




PART II.   OTHER INFORMATION




Item 6.  Exhibits




Exhibit
                                Number
                              
                              Description
      of Document10.1
                              
                              Second
      Amendment to First Amended and Restated Credit Agreement, dated as of
      November 10, 2008, among American Campus Communities Operating Partnership
      LP, as borrower, American Campus Communities, Inc., as Parent Guarantor,
      the Subsidiary Guarantors listed on the signature pages thereto, KeyBank
      National Association, as Administrative Agent, and the other lenders that
      are signatories thereto.10.2
                              
                              First
      Amendment to Senior Secured Term Loan Agreement, dated as of November 10,
      2008, among American Campus Communities Operating Partnership LP, as
      borrower, American Campus Communities, Inc., as Parent Guarantor, the
      Subsidiary Guarantors listed on the signature pages thereto, KeyBank
      National Association, as Administrative Agent, and the other lenders that
      are signatories thereto.31.1
                              
                              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.




42




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:
              November
      10, 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






43