Bill Bayless VITAL STATISTICS: American Campus Communities HEADQUARTERS ADDRESS: 805 Las Cimas ParkwaySuite 400Austin, Texas 78746 TELEPHONE: 512-732-1000 WEB SITE: www.studenthousing.com TICKER: NYSE: ACC KEY EXECUTIVES: President & CEO Bill Bayless; CFO Brian Nickel 52-WEEK HIGH: $28.58 52-WEEK LOW: $20.63

By Jennifer D. Duell

Bill Bayless considers himself an expert on the ins and outs of student housing—after all, he got started in the industry in the mid-1980s when he was a resident assistant (RA) at one of the dorms at West Virginia University. His college experiences with creating environments conducive to learning and exploring student housing operations paved the way for his current role as president and CEO of Texas-based American Campus Communities (NYSE: ACC).

Bayless isn't the only one at American Campus Communities who spent time living and working in student housing–six other senior executives at the REIT were also RAs.

"We've spent our entire careers in this business, so we've been there, done that," Bayless says, pointing out that student housing is the REIT's only asset category.

American Campus Communities is the largest student housing REIT in the nation with a total market cap of $900 million. It owns and manages 38 student housing properties and provides management and leasing services at an additional 53 properties. In its 13-year history, the company has excelled in an industry where many others have failed.

At The University Village at Sweethome, located just outside of S.U.N.Y. Buffalo, students can enjoy amenities such as a fitness center, tanning beds, swimming pool and spa.

"Student housing is very operationally intense, and mistakes can be fatal," Bayless says. "It's not a nice, normalized cycle."

For example, Bayless says, multifamily owners are used to a consistent level of move-ins and move-outs on a monthly basis. In contrast, all student housing properties are leased by the bed and all leases go into effect on the same day, which means that 700 to 800 leases must be executed within days and 700 to 800 residents must be checked in. There are also issues related to processing 700 to 800 rent checks, handling move-outs, and 10- to 14-day make-ready periods.

"Our sole focus on this market is what sets us apart from other companies that see student housing as a niche," Bayless says.

Beginning Its Education

American Campus Communities has evolved significantly since its rather humble beginning as a four-person shop that focused exclusively on third-party management of student housing. The REIT's predecessor company, American Campus Lifestyles Companies (ACLC), was launched in 1993 after Bayless, student housing owner Joseph Domberger, and entrepreneur Wayne Senecal came together to take on the management contract for Dobie Center, a large dormitory on the University of Texas campus in Austin that needed a complete overhaul.

In the midst of the renovation work on Dobie Center, the company added Langston University and Florida State University as new clients. In 1995, it expanded its operating platform to develop and manage student housing for Prairie View A&M University.

Its first on-campus development project, University Village, a 672-bed project at Prairie View A&M, opened in 1996 with a 100 percent occupancy and a waiting list of more than 400 students. Later that same year, ACLC scored another coup when Texas A&M International University, a new four-year institution in Laredo, Texas, tapped it to develop new on-campus housing.

Vista del Campo, located near the University of California, Irvine, has community amenities such as social lounges and study areas to meet the sophisticated needs of students.

"The types of housing where students share rooms and there's a community bathroom no longer meet the needs of today's students," Bayless contends, adding that these types of floorplans were suitable for generations that grew up sharing bedrooms and baths at home, but not for today's students who are used to privacy and high-end amenities. "The students have become more sophisticated in their housing needs."

Roughly two years after launching its development initiatives, ACLC sought out New York-based Reckson Partners to recapitalize the company to allow for acquisitions and off-campus development. Reckson acquired a majority interest in the company, and shortly thereafter ACLC changed its name to American Campus Communities (Reckson no longer has an interest in the company).

From 1997 to early 2004, American Campus Communities focused on beefing up its acquisition efforts and its off-campus development activities. During that time, the company purchased student housing properties at the University of Central Florida, Arizona State University and University of Georgia and developed properties at Texas A&M University, University of Colorado and University of California, just to name a few.

However, because most institutional investors considered student housing a niche play, American Campus Communities found its weighted cost of capital to be in the double digit range, Bayless says. A lower cost of capital, coupled with the promise of easy access to the public markets, convinced American Campus Communities to go public in August 2004.

Graduating to the Next Level

"The biggest turning point for our company was going public," Bayless says. "Shortly after that, we saw our weighted cost of capital go from double digits to single digits. The credibility created by becoming a public company really gave us a competitive advantage."

American Campus Communities properties provide modern areas for students to work and play, such as billard rooms, computer centers, arcade/game rooms, movie theater rooms and areas for outdoor cooking with gas grills.

During its first full year as a public company, American Campus Communities achieved impressive financial performance, increasing revenues 43.8 percent to $87.5 million and pushing net income to $9.7 million, or 65 cents per fully diluted share. Funds from operations (FFO) for the year totaled $20 million, or $1.33 per fully diluted share, compared with $8.6 million in 2004. On a property basis, net operating income for off-campus properties increased 11.6 percent and occupancy increased to 98.4 percent.

In 2005, 90 percent of American Campus Communities' revenues were derived from owned assets, and 10 percent came from third-party development and management, Bayless notes. "As we experience growth as a REIT, we expect that management fees will become a smaller percentage of our overall revenues."

American Campus Communities has a three-pronged strategy for continuing to extend its options: building its own portfolio of properties both on and off campus; providing fee development and construction services to universities; and managing properties for itself and university clients.

Since its IPO in August 2004, the REIT has closed on $360 million of acquisitions, added $36 million of new development to its portfolio and broken ground on $150 million in new development—both for itself and as a fee developer.

"Universities don't view student housing as real estate, they see it as core to the academic mission of bringing students together to provide education outside of the classroom," Bayless says. "They see us as supporters of their academic mission." Moreover, Bayless says, parents are willing to pay a premium for their children to live in a place that offers the right kind of environment to encourage academic achievement, which American Campus Communities provides.

A Degree in Development

Through a mix of new development and acquisitions, American Campus Communities increased its total assets owned by 50 percent to $550.9 million from December 2004 to December 2005. "When we first went public, we said that we would have more acquisition activity than development," Bayless says. "But, when you look at what we've achieved thus far, we have really stepped up our owned development activity."

Bayless explains that the acquisition environment has become more competitive—to the point where development yields of 7.5 percent to 8 percent look better than acquisition yields.

Acquisition opportunities for American Campus Communities continue to emerge, Bayless says, but "we're staying true to our investment criteria, which we follow religiously."

The REIT's investment criteria are comprised of three key elements: proximity to campus, barriers to entry and quality construction. American Campus Communities prefers that its communities feature pedestrian or bicycle access to campus (23 of the company's properties are located within one mile of campus). Also, American Campus Communities is careful to choose markets that are less likely to be overbuilt.

"We work with the local brokerage community to identify those tough to develop sites," Bayless says, adding that the company often gets support from the universities when pursuing new projects. "Sometimes we feel that we secure the sites because we have the respect of the universities."

Moreover, American Campus Communities does an extensive amount of research to customize its product offering to the market rather than having a cookie cutter design. For example, near the Texas A&M University campus in College Station, Texas, American Campus Communities discovered that the high-end freshman living market was underserved and stepped in with The Callaway House, a full-service freshman residence hall that offers 145,068 square feet of room space with 173 units and 566 beds. The community features a full-service dining hall that is open seven days a week.

The Callaway House was so successful that American Campus Communities developed an adjacent student townhome housing property called Callaway Villas. Sophomores can move into Callaway Villas, Bayless says, adding that the 704-bed luxury community will offer private bedroom and private bathroom accommodations.

"Callaway Villas will set the standard for all student housing going forward," Bayless contends, explaining that the property, which will open August 2006, offers extensive amenities including a 15,000-square foot clubhouse, full fitness center and gym, tanning booths, mini-theater room, student lounge with billiards and ping pong, a resort-style swimming pool, an outdoor basketball court and a sand volleyball court.

In addition to Callaway Villas, American Campus Communities is working on a $72.9 million student housing project located across the street from the New Jersey Institute of Technology and two blocks from Rutgers University. Dubbed The Village at Newark, the 812-bed community will consist of two residential buildings with an adjacent parking garage and will be the only off-campus project in the area specifically designed as student housing. The project is scheduled for completion in May 2007.

The Village at Newark is just one of American Campus Communities' new opportunities. For example, the REIT is moving forward with three new properties on the Arizona State University campus totaling 4,850 beds. The total project cost is estimated at $345 million, and the company intends to develop these properties as part of its owned portfolio. In March, American Campus Communities closed on its largest acquisition ever—the $244.3 million purchase of Royal Properties' student housing portfolio, consisting of 13 properties containing 5,710 beds in 10 markets.

Looking forward, American Campus Communities plans to focus its acquisition and development activities in markets with the largest concentration of students and college enrollment: Florida, Texas, California and Arizona are all top markets. Bayless adds that his company is in a good place strategically in the increasingly popular student housing market.

"Student housing can be very lucrative," Bayless says. "I wish that it was still the best kept secret—that people still believed the 'Animal House' misperception of the industry."