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As filed with the Securities and Exchange Commission on June 21, 2010
Registration Statement No. 333-166834
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Amendment No. 1
to
Form S-11
FOR REGISTRATION
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
 
 
CAMPUS CREST COMMUNITIES, INC.
(Exact Name of Registrant as Specified in Governing Instruments)
 
 
2100 Rexford Road, Suite 414
Charlotte, NC 28211
(704) 496-2500
(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
 
Ted W. Rollins
Chief Executive Officer
2100 Rexford Road, Suite 414
Charlotte, NC 28211
(704) 496-2500
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)
 
 
Copies to:
         
Paul S. Ware
J. Andrew Robison
Bradley Arant Boult Cummings LLP
1819 Fifth Avenue North
Birmingham, AL 35203
(205) 521-8000
  Jonathan Golden
Arnall Golden Gregory LLP
171 17th Street NW
Suite 2100
Atlanta, GA 30363-1031
(404) 873-8500
  J. Gerard Cummins
Bartholomew A. Sheehan III
Sidley Austin LLP
787 Seventh Avenue
New York, NY 10019
(212) 839-5300
 
 
 
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
 
If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer o
  Accelerated filer o   Non-accelerated filer þ
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
 
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
Subject to Completion
Preliminary Prospectus dated June 21, 2010
 
PROSPECTUS
 
(CAMPUS CREST LOGO)
 
           Shares
 
Campus Crest Communities, Inc.
 
Common Stock
 
 
Campus Crest Communities, Inc. is a self-managed, self-administered, vertically-integrated developer, builder, owner and manager of high-quality, purpose-built student housing. Prior to this offering, our business was conducted through Campus Crest Group, LLC, which is wholly-owned and controlled by Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, and certain members of their families. Upon completion of this offering and our formation transactions, we will own interests in 27 student housing properties containing approximately 13,580 beds.
 
This is our initial public offering. We are offering           shares of our common stock, $0.01 par value per share. We expect the initial public offering price of our common stock to be between $      and $      per share. Currently, no public market exists for our common stock. We expect to apply to have our common stock listed on The New York Stock Exchange under the symbol ‘‘CCG.”
 
We are organized as a Maryland corporation and intend to elect and qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2010. Subject to certain exceptions described in this prospectus, upon completion of this offering, our charter will provide that no person may own, or be deemed to own, more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate.
 
Investing in our common stock involves significant risks. You should read the section entitled “Risk Factors” beginning on page 23 of this prospectus for a discussion of the risks that you should consider before investing in our common stock.
 
                 
    Per
   
    Share   Total
 
Public offering price
  $                $             
Underwriting discount(1)
  $       $    
Proceeds, before expenses, to us
  $       $  
 
 
(1) Excludes a structuring fee payable to Raymond James & Associates, Inc. of 0.35% of the total public offering price of our common stock sold in this offering. See “Underwriting.”
 
The underwriters may purchase up to an additional           shares of our common stock at the initial public offering price less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments, if any.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The underwriters expect to deliver the common stock on or about          , 2010.
 
 
 
 
RAYMOND JAMES
 
 
The date of this prospectus is          , 2010


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You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us. We have not, and the underwriters have not, authorized anyone to provide you with any additional or different information. If anyone provides you with additional or different information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or such other date as specified herein. Our business, financial condition, liquidity, funds from operations, or “FFO,” results of operations and prospects may have changed since such dates.
 
Unless the context otherwise requires, references to “company,” “we,” “us” and “our” refer to (i) Campus Crest Communities, Inc., a Maryland corporation, and its consolidated subsidiaries, including Campus Crest Communities Operating Partnership, LP, a Delaware limited partnership, through which we will conduct substantially all of our business, which we refer to as “our operating partnership,” except where it is clear from the context that the term means only the


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issuer of the common stock, Campus Crest Communities, Inc., and (ii) with respect to the period prior to the completion of this offering, the business of our predecessor entities through which Campus Crest Group, LLC, a North Carolina limited liability company, or “Campus Crest Group,” carried out the development, construction, ownership and management of the properties that we will own interests in upon completion of this offering and our formation transactions; references to “predecessor entities” refer to one or more of the joint venture arrangements that owned our properties and the entities through which Campus Crest Group carried out our business; references to “MXT Capital” refer to MXT Capital, LLC, a Delaware limited liability company, which is wholly-owned and controlled by Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, and certain members of their families, and is the sole owner of Campus Crest Group; references to the “Ricker Group” refer to Carl H. Ricker, Jr. and the vehicles through which Mr. Ricker or an affiliated party held interests in our predecessor entities; references to “HSRE” refer to Harrison Street Real Estate Capital and its affiliates that held interests in our predecessor entities; references to “common stock” refer to shares of common stock, $0.01 par value per share, in Campus Crest Communities, Inc.; and references to “OP units” refer to limited partnership units in our operating partnership that are exchangeable, subsequent to the one-year anniversary of the completion of this offering, for cash or, at our option, common stock on a one-for-one basis. Unless otherwise indicated, the information contained in this prospectus assumes that (a) the common stock to be sold in this offering is sold at $      per share, the mid-point of the price range set forth on the cover page of this prospectus, and (b) the underwriters’ overallotment option is not exercised.
 
 
Industry and Market Data
 
We use market data, industry forecasts and projections throughout this prospectus. We have obtained portions of this information from a market study prepared for us by Michael Gallis & Associates (“MGA”), a North Carolina-based strategic planning and design firm, in connection with this offering. The forecasts and projections are based on MGA’s experience and data published by the U.S. Department of Education and other sources, and there is no assurance that any of the projections will be accurate. We believe that the study is reliable, but we have not independently verified the information in the study nor have we ascertained any underlying assumptions relied upon therein. While we are not aware of any misstatements regarding the industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”


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PROSPECTUS SUMMARY
 
This summary highlights selected information appearing elsewhere in this prospectus. This prospectus includes information regarding our business and detailed financial data, as well as information about the common stock we are offering. You should read this prospectus in its entirety, including “Risk Factors” and the financial statements and related notes appearing elsewhere in this prospectus, before deciding to purchase our common stock.
 
Our Company
 
Campus Crest Communities, Inc. is a self-managed, self-administered, vertically-integrated developer, builder, owner and manager of high-quality, purpose-built student housing. Prior to this offering, our business was conducted through Campus Crest Group, which is wholly-owned and controlled by Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, and certain members of their families. We intend to elect and qualify to be taxed as a real estate investment trust, or “REIT,” for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2010.
 
We believe that we are one of the largest vertically-integrated developers, builders, owners and managers of high-quality, purpose-built student housing properties in the United States based on beds owned and under management. Upon completion of this offering and our formation transactions, we will own interests in 27 student housing properties containing approximately 5,048 units and 13,580 beds. All of our properties are recently built, with an average age of approximately 2.0 years as of May 31, 2010. Twenty-one of our properties will be wholly-owned and six will be owned through a joint venture with HSRE, in which we will have a 49.9% interest. Three of our joint venture properties are currently under construction, with completion and occupancy expected for the 2010-2011 academic year.
 
Our 21 wholly-owned properties contain approximately:
 
  •   3,920 apartment units; and
 
  •   10,528 beds.
 
Our six joint venture properties contain approximately:
 
  •   1,128 apartment units; and
 
  •   3,052 beds.
 
As of May 31, 2010, our 24 operating properties had:
 
  •   average occupancy of approximately 87%; and
 
  •   average monthly rental income per occupied bed of approximately $457.
 
We were formed to continue and expand the student housing business of Campus Crest Group, which has been engaged in this business since 2004. Our properties are located in 11 states, primarily in medium-sized college and university markets, which we define as markets located outside of major U.S. cities that have nearby schools with overall enrollment of approximately 8,000 to 20,000 students. We believe such markets are underserved and are generally experiencing enrollment growth. All of our properties have been developed, built and managed by Campus Crest Group, generally based upon a common prototypical building design. We believe that our use of this prototypical building design, which we have built approximately 410 times at our 27 student housing properties (approximately 15 of such residential buildings comprise one student housing property), allows us to efficiently deliver a uniform and proven student housing product in multiple markets. All of our properties operate under The Grove®


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brand, and we believe that our brand and associated lifestyle are effective differentiators that create higher visibility and appeal for our properties within their markets.
 
In addition to our existing properties, we actively seek new development opportunities. We expect that, subject to completion of this offering, we will acquire land and commence building properties for our own account on five identified sites that we have under contract, with completion targeted for the 2011-2012 academic year. For each of these five sites, we have conducted significant pre-development activities and are in the process of obtaining the necessary zoning and site plan approvals. In total, we have identified over 200 markets and approximately 80 specific sites within these markets as potential future development opportunities, and our current business plan contemplates the development of approximately five to seven new student housing properties per year. No assurance can be given that we will not adjust our business plan as it relates to development, or that any particular development opportunity will be undertaken or completed in accordance with our current expectations.
 
Our company is led by our co-founders Ted W. Rollins and Michael S. Hartnett, each of whom has over 25 years of real estate investment and operating experience, including the development and management of over 13,000 student housing beds. They are supported by over 400 full and part time employees who carry out our development, construction, property management and asset management activities.
 
Our principal executive offices are located at 2100 Rexford Road, Suite 414, Charlotte, NC 28211. Our telephone number is (704) 496-2500. Our website is located at www.gogrove.com. The information on our website is not part of this prospectus. We have included our website address only as an inactive textual reference and do not intend this to be an active link to our website.
 
Market Opportunity
 
We believe that attractive investment opportunities exist in the student housing market due to various factors impacting the supply, demand and profit potential of this market in the United States. These factors include:
 
Significant and Sustainable Growth in College Enrollments. Based on information from the National Center for Education Statistics and the U.S. Census Bureau, college enrollments are projected to grow at a faster rate than the overall population through 2017. This growth is expected to be driven primarily by: (i) the significant growth of the college-aged population in the U.S. fueled by the Echo Boom generation (i.e., the children of the Baby Boomers), (ii) an increase in the percentage of graduating high school students choosing to enroll in college and (iii) a trend toward longer college enrollments.
 
Outsourcing Pressure Due to Institutional Budgetary Constraints. We believe that budget shortfalls and funding constraints at colleges and universities have reduced the availability of capital to build new student housing supply commensurate with enrollment increases. Thus, colleges and universities are increasingly relying on private developers to offer on-campus and off-campus student housing options to support enrollment growth.
 
Obsolescence of Existing Dormitory-Style Student Housing. Increasingly, on-campus, dormitory-style student housing facilities are becoming obsolete and are in need of significant renovation or replacement. Traditional dormitory-style housing typically consists of shared rooms, communal bathroom facilities and limited (if any) amenities and parking. We believe that such facilities do not meet the needs and preferences of modern-day college students, who generally have a higher standard of living and an increased focus on privacy, amenities and other lifestyle considerations than previous generations of students.


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Highly Fragmented Ownership with Diminishing Competition and Costs. The student housing industry is highly fragmented, which provides opportunities for consolidation. Moreover, the recent economic environment has reduced the availability of construction financing, which has restricted the number of new competitors entering the industry and created opportunities for well-capitalized firms specializing in student housing. Meanwhile, as competition has become constrained, excess capacity in the residential and commercial construction markets has lowered material and labor costs for firms able to access capital for new projects.
 
Availability of Attractive, Long-Term Financing through Freddie Mac and Fannie Mae. Despite tightening credit markets, stabilized student housing properties continue generally to have access to long-term debt financing through Federal Home Loan Mortgage Corporation, or Freddie Mac, and Federal National Mortgage Association, or Fannie Mae.
 
Our Competitive Strengths
 
We believe that we distinguish ourselves from other developers, builders, owners and managers of student housing properties through the following competitive strengths:
 
Experienced Management Team with Demonstrated Track Record. Our management team is led by Messrs. Rollins and Hartnett, each of whom has over 25 years of real estate investment, advisory and management experience. Our management team has overseen the financing, development, construction and management of all of our student housing properties with an aggregate cost of approximately $500 million.
 
Modern, Well-Located Portfolio. The average age of our student housing properties is approximately 2.0 years as of May 31, 2010, and all of our properties are located in close proximity to the campuses of the schools from which they draw student-tenants, with an average distance to campus of approximately 0.6 miles.
 
Attractive, Branded Properties. All of our properties operate under The Grove® brand, and all of our properties feature private bedrooms with en suite bathrooms, full furnishings, state-of-the-art technology, ample parking, and a broad array of other on-site amenities, such as resort-style swimming pools, basketball and volleyball courts, and community clubhouses with regularly planned social activities. We strive to offer not just an apartment but an entire lifestyle and community experience designed to appeal to the modern-day college student.
 
Proven and Scalable Business Model. We believe that our vertically-integrated business model enables us to deliver properties economically while maintaining consistency in our building design, construction quality and amenity offerings. We continue to refine our processes and systems in an effort to reduce costs and improve quality, having overseen the construction of the same prototypical residential building approximately 410 times during the last six years.
 
Focus on Underserved College Markets. We generally focus on medium-sized college and university markets. While total enrollments in these markets are generally lower than enrollments in larger educational markets, the overall market dynamics are often more favorable (e.g., higher enrollment growth rates and fewer purpose-built student housing competitors).
 
Conservative Capitalization. Upon the completion of this offering and the application of the net proceeds therefrom, our debt to total market capitalization ratio will be approximately     %, which should provide us with ample financing capacity to fund identified future growth opportunities. In addition, upon completion of this offering, we expect to obtain a     -year, $      million senior secured revolving credit facility that may be used for general corporate purposes and to finance, among other things, identified future growth


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opportunities, including the five properties that we expect to commence building upon completion of this offering.
 
Our Business and Growth Strategies
 
Our objective is to maximize total returns to our stockholders through the pursuit of the following business and growth strategies:
 
Utilize Our Vertically-Integrated Platform. Our vertically-integrated platform performs each key function in the student housing value chain: project development, project construction, property management and asset management. We believe that the ongoing feedback and accountability facilitated by our vertically-integrated platform will allow us to continuously improve efficiency, reduce costs, control project timing and enhance the overall quality of our properties.
 
Target Attractive Markets. We utilize a proprietary underwriting model with over 60 inputs to evaluate the relative attractiveness of each potential development market. We focus on markets that exceed certain student enrollment thresholds and exhibit favorable student housing supply-demand dynamics. Our due diligence process is designed to identify markets in which we can operate successfully and profitably.
 
Optimize Our Properties and Brand Value. We employ a consistent set of operating principles across our properties in order to optimize the student lifestyle experience and enhance the value and recognition of our brand. We believe that our focus on enhancing student lifestyle and promoting a sense of community at our properties drives improved occupancy and allows us to charge premium rents.
 
Development Growth. We believe that our vertically-integrated platform will generally allow us to generate more favorable returns by developing new properties versus acquiring existing properties from third parties, and we therefore anticipate that in-house development will remain the primary driver of our growth. Our current business plan contemplates the development of approximately five to seven new student housing properties per year from our identified pipeline of opportunities, including five properties with completion targeted for the 2011-2012 academic year.
 
Acquisition Growth. We may also seek to grow by selectively acquiring student housing properties from third parties. Generally, we anticipate that any properties acquired from third parties would meet our investment criteria for development properties and fit into our overall strategy in terms of property quality, proximity to campus, bed-bath parity, availability of amenities and return on investment.
 
Summary Risk Factors
 
An investment in our common stock involves various risks. You should carefully consider the matters discussed in “Risk Factors” beginning on page 22 of this prospectus before making a decision to invest in our common stock. Some of the risks include the following:
 
  •   Developing properties will expose us to additional risks beyond those associated with owning and operating student housing properties, and could materially and adversely affect us.
 
  •   We rely on our relationships with the colleges and universities from which our properties draw student-tenants and the policies and reputations of these schools; any deterioration in our relationships with such schools or changes in the schools’ admissions or residency policies or reputations could materially and adversely affect us.


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  •   Our results of operations are subject to risks inherent in the student housing industry, such as an annual leasing cycle and limited leasing period, which could materially and adversely affect us.
 
  •   Competition from other student housing properties, including on-campus housing and traditional multi-family housing located in close proximity to the colleges and universities from which we draw student-tenants, may reduce the demand for our properties, which could materially and adversely affect us.
 
  •   Our success depends on key personnel whose continued service is not guaranteed, and their departure could materially and adversely affect us.
 
  •   Adverse economic conditions and dislocation in the credit markets have had a material and adverse effect on us and may continue to materially and adversely affect us.
 
  •   The current economic environment could reduce enrollment and limit the demand for our properties, which could materially and adversely affect us.
 
  •   In the past we have experienced significant losses and negative cash flows from operations; if these trends continue, we could be materially and adversely affected.
 
  •   If we are unable to acquire properties on favorable terms, our future growth could be materially and adversely affected.
 
  •   Our strategy of investing in properties located in medium-sized college and university markets may not be successful, which could materially and adversely affect us.
 
  •   Our indebtedness exposes us to a risk of default and will reduce our free cash flow, which could materially and adversely affect us.
 
  •   Joint venture investments could be materially and adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and disputes between our co-venturers and us.
 
  •   Our management team has not previously operated a REIT, and this inexperience could materially and adversely affect us.
 
  •   Our performance and the value of our properties are subject to risks associated with real estate and with the real estate industry, which could materially and adversely affect us.
 
  •   Provisions of our charter allow our board of directors to authorize the issuance of additional securities, which may limit the ability of a third party to acquire control of us through a transaction that our stockholders believe to be in their best interest.
 
  •   Provisions of Maryland law may limit the ability of a third party to acquire control of us, which, in turn, may negatively affect our stockholders’ ability to realize a premium over the market price of our common stock.
 
  •   The ownership limitations in our charter may restrict or prevent you from engaging in certain transfers of our common stock, which may delay or prevent a change in control of us that our stockholders believe to be in their best interest.


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  •   We may not be able to make our initial distributions or maintain our initial, or any subsequent, distribution rate.
 
  •   A public market for our common stock may never develop and your ability to sell your shares of our common stock may be limited.
 
  •   Common stock eligible for future sale may adversely affect the market price of our common stock.
 
  •   Future offerings of debt or equity securities ranking senior to our common stock may limit our operating and financial flexibility and may adversely affect the market price of our common stock.
 
  •   We have not obtained appraisals of our properties in connection with this offering and the price we pay to our existing investors for their interests in our predecessor entities may exceed our properties’ market value.
 
  •   Our failure to qualify or remain qualified as a REIT could have a material and adverse effect on us and the market price of our common stock.
 
  •   To qualify and remain qualified as a REIT, we will likely rely on the availability of equity and debt capital to fund our business.
 
  •   Complying with REIT requirements may cause us to forgo otherwise attractive investment opportunities, which could materially and adversely affect us.


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Our Properties
 
The following table presents certain summary information about the 21 properties that we will own 100% interests in and the six joint venture properties that we will own 49.9% interests in upon completion of this offering and our formation transactions. All properties were developed and built by us.
 
                                                                 
                                                  Average Rental
 
                                            Occupancy
    Revenue
 
                    Fall 2009
    Distance to
    Number
    Number
    as of
    Per
 
            Year
      Overall
    Campus
    of
    of
    May 31,
    Occupied
 
   
City
  State   Opened   Primary University Served   Enrollment     (miles)     Units     Beds     2010     Bed  
 
    Wholly-Owned Properties                                                        
1
  Asheville   NC   2005   University of NC - Asheville     3,695       0.1       154       448       94 %   $ 464  
2
  Carrollton   GA   2006   University of West Georgia     11,500       0.1       168       492       98 %   $ 424  
3
  Las Cruces   NM   2006   New Mexico State University     18,497       0.4       168       492       82 %   $ 442  
4
  Milledgeville   GA   2006   Georgia College & State University     6,633       0.1       168       492       97 %   $ 500  
5
  Abilene   TX   2007   Abilene Christian University     4,838       0.5       192       504       79 %   $ 449  
6
  Ellensburg   WA   2007   Central Washington University     10,187       0.5       192       504       99 %   $ 458  
7
  Greeley   CO   2007   University of Northern Colorado     12,711       1.0       192       504       74 %   $ 448  
8
  Jacksonville   AL   2007   Jacksonville State University     9,351       0.2       192       504       80 %   $ 418  
9
  Mobile—Phase I (1)   AL   2007   University of South Alabama     14,522       On-
Campus
      192       504       95 %   $ 453  
10
  Mobile—Phase II (1)   AL   2008   University of South Alabama     14,522       On-
Campus
      192       504       97 %   $ 452  
11
  Nacogdoches   TX   2007   Stephen F. Austin University     12,845       0.4       196       522       94 %   $ 487  
12
  Cheney   WA   2008   Eastern Washington University     11,302       0.5       192       512       97 %   $ 452  
13
  Jonesboro   AR   2008   Arkansas State University     12,156       0.2       192       504       82 %   $ 395  
14
  Lubbock   TX   2008   Texas Tech University     30,049       2.1       192       504       85 %   $ 469  
15
  Stephenville   TX   2008   Tarleton State University     8,598       0.8       192       504       97 %   $ 451  
16
  Troy   AL   2008   Troy University     6,679       0.4       192       514       94 %   $ 453  
17
  Waco   TX   2008   Baylor University     14,614       0.8       192       504       89 %   $ 514  
18
  Wichita   KS   2008   Wichita State University     14,823       1.1       192       504       89 %   $ 430  
19
  Wichita Falls   TX   2008   Midwestern State University     6,341       1.2       192       504       67 %   $ 451  
20
  Murfreesboro   TN   2009   Middle Tennessee State     25,188       0.8       186       504       89 %   $ 454  
21
  San Marcos   TX   2009   Texas State University     30,816       1.7       192       504       98 %   $ 525  
                                                                 
Sub Total of Wholly Owned Properties
    13,327  (2)     0.6  (2)     3,920       10,528       89 (3)   $ 458  (3)
                                                 
 


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                                        Average Rental
                                    Occupancy
  Revenue
                    Fall 2009
  Distance to
          as of
  Per
            Year
      Overall
  Campus
  Number
  Number
  May 31,
  Occupied
    City   State   Opened   Primary University Served   Enrollment   (miles)   of Units   of Beds   2010   Bed
 
    Joint Venture Properties — 49.9% Ownership Interest                                                
22
  Lawrence (4)   KS   2009   University of Kansas     29,242       1.6       172       500       63 %   $ 444  
23
  Moscow (1)   ID   2009   University of Idaho     11,957       0.5       192       504       46 %   $ 447  
24
  San Angelo   TX   2009   Angelo State University     6,387       0.3       192       504       91 %   $ 445  
25
  Conway (5)   AR   2010   University of Central Arkansas     11,781       0.4       180       504       NA       NA  
26
  Huntsville (5)   TX   2010   Sam Houston State University     16,772       0.2       192       504       NA       NA  
27
  Statesboro (5)   GA   2010   Georgia Southern University     19,086       0.7       200       536       NA       NA  
                                                                 
Sub Total of Joint Venture Properties
    15,871  (2)     0.6  (2)     1,128       3,052       67 (3)   $ 445  (3)
                                                 
Total Properties
    13,892  (2)     0.6  (2)     5,048       13,580       87 (3)   $ 457  (3)
                                                 
 
 
(1) Property subject to a ground lease.
 
(2) Average.
 
(3) Weighted average for the month ended May 31, 2010.
 
(4) Occupancy based on 300 beds available for the 2009-2010 academic year; the property has been expanded and now has a total of 500 beds available for the 2010-2011 academic year.
 
(5) Property currently under construction, with completion and occupancy expected for the 2010-2011 academic year. As of May 31, 2010, the percentage of beds leased at Conway, AR, Huntsville, TX and Statesboro, GA was 73%, 100% and 78%, respectively.
 
Our Financing Strategy
 
Upon the completion of this offering and the application of the net proceeds therefrom, we will have total consolidated indebtedness of approximately $132.3 million and 12 unencumbered properties available to serve as collateral for an expected     -year, $      million senior secured revolving credit facility, or our revolving credit facility. Amounts outstanding under our revolving credit facility will bear interest at a floating rate equal to          . We anticipate that a portion of our revolving credit facility will be used, in conjunction with construction debt, to finance the construction of the five properties that we expect to commence building upon the completion of this offering.
 
We generally intend to limit our ratio of debt to total market capitalization to not greater than     %, although our charter places no limit on the amount of indebtedness that we may incur and we may exceed this level from time to time. We intend to finance our long-term growth with common and preferred equity issuances and debt financing having staggered maturities. Our debt may include mortgage debt secured by our properties, as well as unsecured debt, and such debt may require us to pay fixed or floating rates of interest. We will seek to utilize Freddie Mac and Fannie Mae long-term debt financing for stabilized properties to the extent possible. In addition to our three joint venture properties currently under construction, we may also seek in the future to finance development projects through unconsolidated joint ventures with third parties.
 
Structure and Formation
 
We were formed as a Maryland corporation on March 1, 2010. Our operating partnership was formed as a Delaware limited partnership on March 4, 2010. Through our wholly-owned subsidiary, Campus Crest Communities GP, LLC, we are the sole general partner of our operating partnership, and we will conduct substantially all of our business through our operating

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partnership. Upon completion of this offering and our formation transactions, we will own a     % limited partnership interest in our operating partnership. MXT Capital, which is wholly-owned and controlled by Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, and certain members of their families, will own a  % limited partnership interest in our operating partnership. The Ricker Group, which owned interests in our predecessor entities prior to the consummation of our formation transactions, will in the aggregate own a     % limited partnership interest in our operating partnership. Certain third-party investors, who owned interests in our predecessor entities prior to the consummation of our formation transactions, will in the aggregate own a     % limited partnership interest in our operating partnership.
 
Certain of our officers and directors will own restricted common stock, representing approximately     % of our common stock outstanding after completion of this offering.
 
Formation Transactions
 
Prior to our formation transactions, all of the interests in our properties were owned by Campus Crest Group and third-party investors, including the Ricker Group and HSRE. The value of these interests was determined by our executive officers based on a capitalization rate analysis, an internal rate of return analysis, an assessment of the fair market value of the properties and the consideration of other factors, such as per bed value and the liquidation preference with respect to certain interests. We did not obtain third-party appraisals or valuations in connection with the formation transactions.
 
Concurrently with this offering, we will engage in the following formation transactions, which are designed to:
 
  •   consolidate the ownership of our properties and the student housing business of Campus Crest Group into our operating partnership and its wholly-owned subsidiaries;
 
  •   facilitate this offering; and
 
  •   enable us to qualify as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2010.
 
Set forth below is an overview of our formation transactions:
 
  •   Pursuant to the terms of a contribution agreement, MXT Capital will contribute to our operating partnership its student housing business and interests in the predecessor entities in exchange for           OP units, representing a     % limited partnership interest in our operating partnership.
 
The contribution agreement states that MXT Capital will provide us with certain representations, warranties and covenants with respect to its ownership interests being contributed to our operating partnership. For a more detailed description of the representations, warranties and covenants being provided by MXT Capital, see “Structure and Formation — Formation Transactions.” MXT Capital will indemnify us with respect to losses resulting from breaches of its representations, warranties and covenants and for any real estate transfer or mortgage recording tax liabilities that we may incur; these indemnification obligations generally are subject to a $250,000 deductible and capped at an amount equal to the aggregate consideration received by MXT Capital pursuant to the contribution agreement (other than the tax liability indemnity, which is not subject to either the


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deductible or the cap) and are limited to claims brought within 18 months from the completion of this offering.
 
  •   Campus Crest Group will distribute to MXT Capital its interests in two parcels of land consisting of 20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties; MXT Capital has agreed not to build student housing properties on these parcels in the future.
 
  •   Campus Crest Group will distribute to MXT Capital its interest in an entity that will own a minority interest in a 1999 Pilatus PC-12 single-engine turboprop airplane. Upon completion of this offering, we will lease this aircraft on payment terms structured to equal our pro rata carrying and operating costs of the aircraft based on our actual usage.
 
  •   Pursuant to the terms of a contribution agreement, the Ricker Group will contribute to our operating partnership its interests in the predecessor entities and the entire ownership interest in the entities that own fee interests in certain properties that were subject to ground leases with the Ricker Group prior to the completion of our formation transactions in exchange for approximately $26.7 million and 266,667 OP units, representing a     % limited partnership interest in our operating partnership.
 
The contribution agreement states that the Ricker Group will provide us with certain representations, warranties and covenants with respect to its ownership interests being contributed to our operating partnership. For a more detailed description of the representations, warranties and covenants being provided by the Ricker Group, see “Structure and Formation — Formation Transactions.” The Ricker Group will indemnify us with respect to losses resulting from breaches of its representations, warranties and covenants; these indemnification obligations generally are subject to a $250,000 deductible and capped at an amount equal to the aggregate consideration received by the Ricker Group pursuant to the contribution agreement and are limited to claims brought within 18 months from the completion of this offering.
 
  •   Pursuant to the terms of contribution agreements and purchase and sale agreements, certain third-party investors will contribute to our operating partnership all of their interests in the predecessor entities in exchange for approximately $10.7 million and 53,000 OP units, representing a     % limited partnership interest in our operating partnership. Under the terms of these agreements, these third-party investors will also provide us with certain limited representations and warranties with respect to their ownership interests being contributed to our operating partnership including authority to enter into the agreement, the absence of claims or litigation involving the contributed interest and the obtaining of any necessary consents to the contribution of the interests. The third-party investors also provide covenants under the agreements, including not to transfer or dispose of any of their contributed interests, and will indemnify us for any losses resulting from breaches of their representations, warranties and covenants.
 
  •   In exchange for approximately $28.6 million, HSRE will sell to our operating partnership (i) all of its interests in each of The Grove at Milledgeville and The Grove at San Marcos, with the result that we will own a 100% interest in each of these properties and (ii) a 49.8% interest in a joint venture that will own 100% of each of The Grove at Conway, The Grove at Huntsville, The Grove at Lawrence, The Grove at Moscow, The Grove at San Angelo and The Grove at Statesboro, with the result that we will own a 49.9% interest in these properties.


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The number of OP units and cash amounts to be received by the parties specified above have been fixed and are not subject to change based upon the public offering price of the common stock to be sold in this offering or any other factor.
 
As a result of our formation transactions:
 
  •   we will own approximately     % of the outstanding OP units, MXT Capital will own approximately     % of the outstanding OP units, the Ricker Group will own approximately     % of the outstanding OP units and certain third-party investors will own, in the aggregate, approximately     % of the outstanding OP units;
 
  •   our operating partnership will own 100% interests in 21 of our properties;
 
  •   our operating partnership will own an indirect 49.9% interest in The Grove at Conway, The Grove at Huntsville, The Grove at Lawrence, The Grove at Moscow, The Grove at San Angelo and The Grove at Statesboro; and
 
  •   we will own each of the entities through which Campus Crest Group conducted its student housing activities.


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Consequences of this Offering and Our Formation Transactions
 
The following diagram depicts the ownership structure of our company, our operating partnership, certain subsidiaries through which we will conduct our development, construction, property management and asset management activities, and our joint venture with HSRE, upon completion of this offering and our formation transactions:
 
(DIAGRAM)
 
(1) Includes an aggregate of 249,335 shares of restricted common stock granted to our independent directors, certain of our executive officers and certain members of our management team.
 
(2) Represents a limited partnership interest in our operating partnership.
 
Benefits to Related Parties
 
In connection with this offering and our formation transactions, MXT Capital, the Ricker Group and certain of our executive officers, members of our management team and members of our board of directors will receive material financial and other benefits, as described below. Each of Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, will, through his respective ownership of MXT Capital, be


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entitled to participate in the benefits realized by MXT Capital in connection with our formation transactions. In addition, Carl H. Ricker, Jr. will, through his ownership in the Ricker Group, be entitled to participate in the benefits realized by the Ricker Group in connection with our formation transactions. We have included the Ricker Group as a related party due to the substantial investment that it held in our predecessor entities and the substantial returns paid to it by our predecessor entities. For a more detailed discussion of these benefits, see “Management” and “Certain Relationships and Related Party Transactions.”
 
  •   Our operating partnership will issue to MXT Capital           OP units in exchange for MXT Capital’s contribution to our operating partnership of the interests owned by MXT Capital in the predecessor entities and its student housing business.
 
  •   MXT Capital will enter into a tax protection agreement with us. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of any of our properties for a period of           years, or the tax protection period, in a transaction that would cause MXT Capital or its members to realize taxable gain that was “built-in,” or the built-in gain, to such properties at the time of their contribution to our operating partnership. All of our properties will have such built-in gain. If we sell one or more of our properties during the tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to it or its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments. Consequently, our ability to sell or dispose of our properties will be substantially restricted by this obligation to make payments to MXT Capital during the tax protection period if we sell a property.
 
The tax protection agreement will also require us to maintain a minimum level of indebtedness of $      throughout the tax protection period in order to allow a sufficient amount of debt to be allocable to MXT Capital and its members to avoid certain adverse tax consequences. If we fail to maintain such minimum indebtedness throughout the tax protection period, and as a consequence MXT Capital or its members incur federal, state or local tax liabilities, we will be required to make indemnifying payments to them, computed in the manner described in the preceding paragraph.
 
  •   We will enter into a registration rights agreement with MXT Capital pursuant to which we will agree, among other things, to register the resale of any common stock that may be exchanged for the OP units issued in our formation transactions. This agreement requires us to seek to register all common stock that may be exchanged for OP units effective as of that date which is 12 months following completion of this offering on a shelf registration statement under the Securities Act of 1933, as amended, or the “Securities Act.”
 
  •   MXT Capital will receive Campus Crest Group’s interests in two parcels of land consisting of 20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties.
 
  •   We will pay the Ricker Group approximately $26.7 million of the net proceeds from this offering and our operating partnership will issue to the Ricker Group 266,667 OP units in exchange for the Ricker Group’s contribution to our operating partnership of the interests owned by the Ricker Group in the predecessor entities and in the entities that have entered into ground leases with us relating to eight properties.
 
  •   Approximately $6.0 million of the net proceeds from this offering will be used to repay indebtedness owed by us to RHR, LLC, an entity owned by MXT Capital and the Ricker


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  Group; RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us.
 
  •   Approximately $4.0 million of the net proceeds from this offering will be used to repay our indebtedness to Capital Bank, an entity in which the Ricker Group has an ownership interest and of which Carl H. Ricker, Jr. is a director.
 
  •   Each of Ted W. Rollins, Michael S. Hartnett and Carl H. Ricker, Jr. will be released from certain personal guarantees with respect to mortgage and construction indebtedness with aggregate principal amounts of $      million, $      million and $      million, respectively, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness described above.
 
  •   Indebtedness incurred by two entities through which MXT Capital conducts aspects of its business will be repaid by MXT Capital. MXT Capital will receive $4.5 million of the net proceeds from this offering, which it will immediately use to make capital contributions to these entities. These entities will, in turn, immediately use the capital contributions received from MXT Capital solely to repay indebtedness.
 
  •   Our executive officers, directors and certain members of our management team will receive material benefits, including:
 
  •   a grant of 249,335 shares of restricted common stock pursuant to the Campus Crest Communities, Inc. 2010 Incentive Award Plan, or the “2010 Incentive Award Plan” (including 100,000 shares of restricted common stock granted in exchange for awards outstanding under Campus Crest Group’s deferred compensation plan, 116,000 shares of restricted common stock granted to certain of our executive officers and certain members of our management team and an aggregate grant of 33,335 shares of restricted common stock to our independent directors);
 
  •   employment agreements providing for salary, bonus and other benefits, including severance upon a termination of employment under certain circumstances, as described under “Management—Employment Agreements;”
 
  •   indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against them as officers; and
 
  •   upon the completion of this offering we have agreed to pay to Donald L. Bobbitt, Jr., an executive vice president and our chief financial officer, and Howard J. Weissman, a senior vice president and our corporate controller, cash bonuses of $200,000 and $125,000, respectively.
 
  •   Each of our non-employee directors will receive material benefits, including:
 
  •   annual and per-meeting fees described under “Management—Director Compensation;” and
 
  •   indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against him as a director.


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Restrictions on Ownership of Our Capital Stock
 
Our charter, subject to certain exceptions and after the application of certain attribution rules, prohibits any person from directly or indirectly owning more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate, which we refer to in this prospectus collectively as the stock ownership limits. Our charter also prohibits any person from directly or indirectly owning any class of our capital stock if such ownership would result in us being “closely held” under Section 856(h) of the Internal Revenue Code of 1986, as amended, or the “Internal Revenue Code,” or otherwise cause us to fail to qualify as a REIT.
 
Our charter generally provides that any capital stock owned or transferred in violation of the foregoing restrictions will be deemed to be transferred to a charitable trust for the benefit of a charitable beneficiary, and the purported owner or transferee will acquire no rights in such stock. If the foregoing is ineffective for any reason to prevent a violation of these restrictions, then our charter provides that the transfer of such shares will be void.
 
No person may transfer our capital stock or any interest in our capital stock if the transfer would result in our capital stock being beneficially owned by fewer than 100 persons on or after the first day of our second taxable year. Our charter provides that any attempt to transfer our capital stock in violation of this minimum will be void.
 
Lock-up Agreements
 
We, each of our executive officers and directors, MXT Capital and Carl H. Ricker, Jr. have agreed with the underwriters not to offer, sell or otherwise dispose of any common stock or any securities convertible into or exercisable or exchangeable for common stock (including OP units) or any rights to acquire common stock for a period of one year after the date of this prospectus, without the prior written consent of Raymond James & Associates, Inc., the representative of the underwriters, subject to limited exceptions.
 
Our Distribution Policy
 
We intend to pay regular quarterly distributions to our common stockholders. We intend to pay a pro rata initial distribution with respect to the period commencing on the completion of this offering and ending September 30, 2010, based on $           per share for a full quarter. On an annualized basis, this would be $           per share, or an initial annual distribution rate of approximately          % based on an assumed initial public offering price of $           per share (the mid-point of the price range set forth on the cover page of this prospectus). This estimated initial annual distribution is expected to exceed our per-share estimated cash available for distribution to our common stockholders for the 12-month period ending March 31, 2011. Our ability to fund this distribution will depend, in part, upon the receipt of cash flow from three uncombined properties that are currently under construction and scheduled to open in August 2010 for the 2010-2011 academic year, from continued successful leasing of our existing portfolio, and from fee income from development and construction services, the timing and amount of which is inherently uncertain.
 
Our Tax Status
 
In connection with this offering, we intend to elect to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code commencing with our taxable year ending on December 31, 2010. Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal


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Revenue Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our stock. We believe that we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT.
 
As a REIT, we generally will not be subject to U.S. federal income tax on our taxable income that we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and generally will be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification. Accordingly, our failure to qualify as a REIT could materially and adversely affect us, including our ability to make distributions to our stockholders in the future. Even if we qualify as a REIT, we may be subject to some U.S. federal, state and local taxes on our income or property and the income of our taxable REIT subsidiaries will be subject to taxation at normal corporate rates. See “Federal Income Tax Considerations.”


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SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
 
You should read the following summary selected historical and pro forma financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited historical combined financial statements of our Predecessor (as defined below) and notes thereto, and our unaudited pro forma condensed consolidated financial statements and notes thereto. The summary selected historical and pro forma financial information contained in this section is not intended to replace the audited and unaudited financial statements included elsewhere in this prospectus.
 
Our “Predecessor” shall mean certain entities and their consolidated subsidiaries controlled by Campus Crest Group, LLC, which carried out the development, construction, ownership and management of the properties that we will own interests in upon completion of this offering, including its interests in two joint ventures with HSRE.
 
The summary selected historical combined statements of operations and cash flows for the three months ended March 31, 2010 and 2009 and the summary selected historical combined balance sheet information as of March 31, 2010 have been derived from the unaudited historical combined financial statements of our Predecessor, included elsewhere in this prospectus. The unaudited combined financial statements have been prepared on the same basis as our audited combined financial statements and, in the opinion of our management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of this information. The results for any interim period are not necessarily indicative of the results that may be expected for a full year. The summary selected historical combined statements of operations and cash flows for the years ended December 31, 2009, 2008 and 2007 and the summary selected historical combined balance sheet information as of December 31, 2009 and 2008 have been derived from the audited historical combined financial statements of our Predecessor, included elsewhere in this prospectus. The summary selected pro forma condensed consolidated statements of operations for the three months ended March 31, 2010 and for the year ended December 31, 2009 and the summary selected pro forma condensed consolidated balance sheet information as of March 31, 2010 have been derived from our unaudited pro forma condensed consolidated financial statements, included elsewhere in this prospectus.
 
The summary selected pro forma condensed consolidated statements of operations and balance sheet information set forth below has been adjusted to reflect our formation transactions, the sale of the common stock offered hereby, the receipt of the estimated net proceeds from this offering, after deducting the underwriting discount and other estimated offering expenses payable by us, and the use of the estimated net proceeds as described under “Use of Proceeds.” The unaudited pro forma condensed consolidated financial information for the year ended December 31, 2009 and as of and for the three months ended March 31, 2010 is presented as if this offering, the use of net proceeds therefrom and our formation transactions all had occurred as of the last day of the period presented for the purposes of the unaudited pro forma condensed consolidated balance sheet information and on the first day of the period presented for the purposes of the unaudited pro forma condensed consolidated statements of operations.
 
The summary selected historical combined and pro forma condensed consolidated financial information set forth below and the financial statements included elsewhere in this prospectus do not necessarily reflect what our results of operations, financial condition or cash flows would have been if we had operated as a stand-alone company during all periods presented, and, accordingly, such information should not be relied upon as an indicator of our future performance, financial condition or liquidity.


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Statement of Operations Information:
 
                                                         
    Pro Forma Campus
    Historical Campus Crest Communities
 
    Crest Communities, Inc.     Predecessor  
    Three Months
    Year Ended
    Three Months Ended
                   
    Ended
    December 31,
    March 31,     Year Ended December 31,  
    March 31, 2010     2009     2010     2009     2009     2008     2007  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)                    
    (in thousands)  
 
Revenues:
                                                       
Student housing leasing
  $ 12,906     $ 45,021     $ 12,135     $ 10,575     $ 43,708     $ 30,813     $ 15,598  
Student housing services
    758       2,289       729       457       2,265       798       110  
Development, construction and management services
    8,691       24,540       15,693       10,657       60,711       2,505        
                                                         
Total revenues
    22,355       71,850       28,557       21,689       106,684       34,116       15,708  
                                                         
Operating expenses:
                                                       
Student housing operations
    6,845       23,707       6,471       5,494       23,155       14,890       7,470  
Development, construction and management services
    8,142       24,847       14,615       9,969       60,200       2,147        
General and administrative
    1,797       6,450       1,384       1,123       5,617       5,422       3,467  
Ground leases
    47       264       47       48       264       224       40  
Write-off of pre-development costs
          1,211                   1,211       203        
Depreciation and amortization
    4,943       18,598       4,762       4,588       18,371       13,573       5,765  
                                                         
Total operating expenses
    21,774       75,077       27,279       21,222       108,818       36,459       16,742  
Equity in loss of uncombined entities
    (564 )     (565 )     (80 )           (59 )            
                                                         
Operating income (loss)
    17       (3,792 )     1,198       467       (2,193 )     (2,343 )     (1,034 )
Nonoperating income (expenses):
                                                       
Interest expense
    (2,154 )     (8,646 )     (4,469 )     (3,679 )     (15,871 )     (14,946 )     (6,583 )
Change in fair value of interest rate derivatives
    111       90       23       612       797       (8,758 )     (2,115 )
Income taxes
    (395 )     (73 )                              
Other income (expense)
    33       44       33       (68 )     44       (50 )     100  
                                                         
Total nonoperating expenses
    (2,405 )     (8,585 )     (4,413 )     (3,135 )     (15,030 )     (23,754 )     (8,598 )
                                                         
Net loss
    (2,388 )     (12,377 )     (3,215 )     (2,668 )     (17,223 )     (26,097 )     (9,632 )
Net loss attributable to noncontrolling interest
    (167 )     (864 )     (2,112 )     (1,639 )     (10,486 )     (870 )     (2,083 )
                                                         
Net loss attributable to Predecessor
  $ (2,221 )   $ (11,513 )   $ (1,103 )   $ (1,029 )   $ (6,737 )   $ (25,227 )   $ (7,549 )
                                                         


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Balance Sheet Information:
                                 
    Pro Forma
                   
    Campus Crest
    Historical Campus Crest
 
    Communities, Inc.     Communities Predecessor  
    As of
    As of March 31,     As of December 31,  
    March 31, 2010     2010     2009     2008  
    (unaudited)     (unaudited)              
    (in thousands)  
 
Student housing properties
  $ 369,432     $ 347,471     $ 347,157     $ 326,217  
Accumulated depreciation
    (43,689 )     (43,689 )     (38,999 )     (20,794 )
Development in process
    7,493       3,316       3,300       15,742  
                                 
Investment in real estate, net
    333,236       307,098       311,458       321,165  
Investment in uncombined entity
    15,852       3,327       2,980       776  
Other assets
    28,737       21,117       17,358       20,214  
                                 
Total assets
  $ 377,825     $ 331,542     $ 331,796     $ 342,155  
                                 
Mortgage and construction loans
  $ 132,304     $ 329,487     $ 329,102     $ 322,426  
Lines of credit and other debt
          10,018       14,070       9,237  
Other liabilities
    29,026       39,343       31,340       32,606  
                                 
Total liabilities
    161,330       378,848       374,512       364,269  
                                 
Equity
                               
Owners’ equity (deficit)
    268,173       (51,748 )     (50,090 )     (42,502 )
Noncontrolling interest
    (51,678 )     4,442       7,374       20,388  
                                 
Total equity
    216,495       (47,306 )     (42,716 )     (22,114 )
                                 
Total liabilities and equity
  $ 377,825     $ 331,542     $ 331,796     $ 342,155  
                                 
 
Other Data:
 
                 
    Pro Forma
 
    Campus Crest
 
    Communities, Inc.  
    Three Months
    Year Ended
 
    Ended
    December 31,
 
    March 31, 2010     2009  
    (unaudited)        
          (unaudited)  
Funds from operations (“FFO”) (1):
               
Net loss
  $ (2,388 )   $ (12,377 )
Real estate related depreciation and amortization
    4,869       18,432  
Equity portion of real estate related depreciation and amortization on equity investees
    329       355  
                 
FFO
  $ 2,810     $ 6,410  
                 
 


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    Historical Campus Crest Communities Predecessor
    Three Months Ended
   
    March 31,   Year Ended December 31,
    2010   2009   2009   2008   2007
    (unaudited)            
    (in thousands)
 
Cash flow information:
                                       
Net cash provided by (used in) operations
  $ 2,818     $ 6,257     $ 4,353     $ 1,264     $ (1,209 )
Net cash used in investing
    (1,037 )     (11,658 )     (23,552 )     (148,385 )     (113,043 )
Net cash provided by financing
    1,300       4,161       11,060       144,781       126,061  
 
Selected Property Information:
 
                                 
    As of March 31,     As of December 31,  
    2010     2009     2008     2007  
 
Units
    4,476       4,476       3,542       1,814  
Beds
    12,036       12,036       9,520       4,966  
Occupancy
    85 %     84 %     78 %     91 %
 
 
(1) FFO is used by industry analysts and investors as a supplemental operating performance measure for REITs. We calculate FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or “NAREIT.” FFO, as defined by NAREIT, represents net income (loss) determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We use FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating expenses. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially and adversely impact our results from operations, the utility of FFO as a measure of our performance is limited. While FFO is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating FFO and, accordingly, FFO as disclosed by such other REITs may not be comparable to FFO published herein. Therefore, we believe that in order to facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (loss) as presented in the combined financial statements and the other financial statements included elsewhere in this prospectus. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of the properties’ 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.

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THE OFFERING
 
Common stock offered by us                 shares(1)
 
Common stock to be outstanding after this offering
                shares(1)(2)
 
Common stock and OP units to be outstanding after this offering
                shares/units(1)(2)(3)
 
Use of proceeds We will contribute the net proceeds from this offering to our operating partnership, which will use the proceeds as follows:
 
•  approximately $215.6 million to reduce outstanding mortgage and construction loan indebtedness and pay associated costs;
 
•  approximately $4.0 million to repay unsecured indebtedness to Capital Bank;
 
•  approximately $6.0 million to repay unsecured indebtedness to RHR, LLC; RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us;
 
•  approximately $4.5 million will be paid to MXT Capital, which will immediately use such amount to make capital contributions to certain entities that will, in turn, immediately use the capital contributions solely to repay indebtedness;
 
•  approximately $28.6 million to acquire interests in our properties from HSRE and satisfy associated obligations to HSRE;
 
•  approximately $26.7 million to acquire interests in our properties from the Ricker Group;
 
•  approximately $10.7 million to acquire interests in our properties from certain third-party investors;
 
•  approximately $4.2 million to acquire land on which we expect to commence building five properties following the completion of this offering; and
 
•  approximately $      million for working capital and general corporate purposes.
 
Ownership and transfer restrictions Our charter, subject to certain exceptions, prohibits any person from directly or indirectly owning more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”


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Risk factors Investing in our common stock involves significant risks. You should carefully read and consider the information set forth under “Risk Factors” and all other information in this prospectus before investing in our common stock.
 
Proposed New York Stock Exchange symbol
“CCG”
 
 
(1) Excludes           shares of common stock issuable upon exercise of the underwriters’ overallotment option.
 
(2) Includes the grant of 100,000 shares of restricted common stock to certain of our executive officers and certain members of our management team in exchange for awards outstanding under Campus Crest Group’s deferred compensation plan, a grant of 116,000 shares of restricted common stock to certain of our executive officers and certain members of our management team and an aggregate grant of 33,335 shares of restricted common stock to our independent directors.
 
(3) Includes the issuance of an aggregate of                OP units to MXT Capital, the Ricker Group and certain third-party investors in connection with our formation transactions.


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RISK FACTORS
 
Investment in our common stock involves significant risks. You should therefore carefully consider the material risks of an investment in our common stock that are discussed in this section, as well as the other information contained in this prospectus, before making an investment decision. The occurrence of any of the following risks could materially and adversely affect our financial condition, results of operations, cash flow, per share trading price and ability to satisfy our debt service obligations and pay dividends or distributions to you and could cause you to lose all or a significant part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
 
Risks Related to Our Business and Properties
 
Developing properties will expose us to additional risks beyond those associated with owning and operating student housing properties, and could materially and adversely affect us.
 
Our future growth will depend, in part, upon our ability to successfully complete the three properties that we are currently building and the five identified sites that we have under contract and expect to commence building upon completion of this offering and to successfully identify and plan additional development opportunities. Our development activities may be adversely affected by:
 
  •  abandonment of development opportunities after expending significant cash and other resources to determine feasibility, requiring us to expense costs incurred in connection with the abandoned project;
 
  •  construction costs of a project exceeding our original estimates;
 
  •  failure to complete development projects on schedule or in conformity with building plans and specifications;
 
  •  lower than anticipated occupancy and rental rates at a newly completed property, which rates may not be sufficient to make the property profitable;
 
  •  the lack of available construction financing on favorable terms or at all;
 
  •  the lack of available permanent financing upon completion of a property financed through construction loans, on expected terms or at all;
 
  •  failure to obtain, or delays in obtaining, necessary zoning, land use, building, occupancy and other required governmental permits and authorizations; and
 
  •  liability for injuries and accidents occurring during the construction process and for environmental liabilities, including those that may result from off-site disposal of construction materials.
 
Our development activities are subject to delays and cost overruns, which could materially and adversely affect us.
 
Our development activities may be adversely affected by circumstances beyond our control, including: work stoppages; labor disputes; shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers; changes in laws or other governmental regulations, such as those relating to union organizing activity; lack of adequate utility infrastructure and services;


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our reliance on local subcontractors, who may not be adequately capitalized or insured; inclement weather; and shortages, delay in availability, or fluctuations in prices of building materials. Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, developing one or more of our properties. If we are unable to recover these increased costs by raising our lease rates, our financial performance and liquidity could be materially and adversely affected.
 
We may not realize a return on our development activities in a timely manner, which could materially and adversely affect us.
 
Due to the amount of time required for planning, constructing and leasing of development properties, we may not realize a significant cash return for several years. Therefore, if any of our development activities are subject to delays or cost overruns, our growth may be hindered and our results of operations and cash flows may be adversely affected. In addition, new development activities, regardless of whether or not they are ultimately successful, typically require substantial time and attention from management. Furthermore, maintaining our development capabilities involves significant expense, including compensation expense for our development personnel and related overhead. To the extent we cease or limit our development activity, this expense will not be offset by revenues from our development activity. Therefore, if we do not realize a return on our development activities in a timely manner in order to offset these costs and expenses, we could be materially and adversely affected.
 
Any delays we encounter in the completion of the three properties we currently have under construction could materially and adversely affect us.
 
Our properties located in Conway, Arkansas, Huntsville, Texas and Statesboro, Georgia, which upon completion, in aggregate, will comprise approximately 11.4% of our total available beds, are under construction and are subject to the various risks relating to our development activities referred to in these risk factors, including the risks that we may encounter delays in completion and that these properties may experience cost overruns. In addition, in the event we do not complete the construction of these properties by the beginning of the 2010-2011 academic year, the student-tenants with whom we have signed leases may require us to provide them with alternative housing. We have not made any arrangements for such alternative housing and we would likely incur significant expenses in the event we are obligated to provide such housing. If construction is not completed prior to the beginning of the 2010-2011 academic year, these student-tenants may also attempt to break their leases and our occupancy at, and rental revenue from, these properties for the 2010-2011 academic year may suffer, which could materially and adversely affect us.
 
Certain of our properties are subject to liens and claims, which could materially and adversely affect us.
 
Twelve of our properties are subject to liens or claims for materials or labor relating to disputes with subcontractors or other parties that were involved in the development and construction process. We have recorded a liability of approximately $2.5 million related to these liens and claims as of March 31, 2010. There can be no assurance that we will not be required to pay amounts greater than our currently recorded liability in order to obtain the release of the liens or settle these claims. Further, we may not be able to obtain new financing for these properties until the liens are released.
 
Developing properties in new markets may materially and adversely affect us.
 
We may develop properties in markets within the United States in which we do not currently operate. To the extent we choose to develop properties in new markets, we will not possess the same level of familiarity with development in these markets, as we do in our current markets,


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which could adversely affect our ability to develop such properties successfully or at all or to achieve expected performance, which could materially and adversely affect us.
 
We rely on our relationships with the colleges and universities from which our properties draw student-tenants and the policies and reputations of these schools; any deterioration in our relationships with such schools or changes in the schools’ admissions or residency policies or reputations could materially and adversely affect us.
 
We rely on our relationships with colleges and universities for referrals of prospective student-tenants or for mailing lists of prospective student-tenants and their parents. Many of these schools own and operate on-campus student housing which compete with our properties for student-tenants. The failure to maintain good relationships with these schools could therefore have a material adverse effect on us. If schools refuse to provide us with referrals or to make lists of prospective student-tenants and their parents available to us or increase the cost of these lists, the lack of such referrals, lists or increased cost could have a material adverse effect on us.
 
Changes in admission and housing policies could adversely affect us. For example, if a school reduces the number of student admissions or requires that a certain class of students (e.g., freshman) live in on-campus housing, the demand for beds at our properties may be reduced and our occupancy rates may decline. While we may engage in marketing efforts to compensate for any such policy changes, we may not be able to effect such marketing efforts prior to the commencement of the annual lease-up period, or our additional marketing efforts may not be successful, which could reduce the demand for our properties and materially and adversely affect us.
 
It is also important that the schools from which our properties draw student-tenants maintain good reputations and are able to attract the desired number of incoming students. Any degradation in a school’s reputation could inhibit its ability to attract students and reduce the demand for our properties.
 
Our results of operations are subject to risks inherent in the student housing industry, such as an annual leasing cycle and limited leasing period; which could materially and adversely affect us.
 
We generally lease our properties for 11.5-month terms. Therefore, our properties must be entirely re-leased each year, exposing us to more leasing risk than property lessors that lease their properties for longer terms. Student housing properties are also typically leased during a limited leasing period that generally begins in January and ends in August of each year. We are therefore highly dependent on the effectiveness of our marketing and leasing efforts and personnel during this leasing period. We will be subject to heightened leasing risk at properties under development and at properties we may acquire in the future due to our lack of experience leasing such properties. Any significant difficulty in leasing our properties would adversely affect our results of operations, financial condition and ability to pay distributions on our common stock and would likely have a negative impact on the trading price of our common stock.
 
Additionally, student-tenants may be more likely to default on their lease obligations during the summer months, which could further reduce our revenues during this period. Although we typically require a student-tenant’s lease obligations to be guaranteed by a parent, we may have to spend considerable effort and expense in pursuing payment upon a defaulted lease, and our efforts may not be successful.


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Competition from other student housing properties, including on-campus housing and traditional multi-family housing located in close proximity to the colleges and universities from which we draw student-tenants may reduce the demand for our properties, which could materially and adversely affect us.
 
Our properties compete with properties owned by universities, colleges, national and regional student housing businesses and local real estate concerns. On-campus student housing has inherent advantages over off-campus student housing (such as the majority of our properties), due to its physical location on the campus and integration into the academic community, which may cause student-tenants to prefer on-campus housing to off-campus housing. Additionally, colleges and universities may have financial advantages that allow them to provide student housing on more attractive terms than we are able to. For example, colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than private, for-profit real estate concerns, such as us.
 
There are a number of student housing properties that are located near or in the same general vicinity of many of our properties and that compete directly with our properties. Such competing student housing properties may be newer, located closer to campus, charge less rent, possess more attractive amenities, offer more services or offer shorter lease terms or more flexible lease terms than our properties. Competing properties could reduce demand for our properties and materially and adversely affect us.
 
Revenue at a particular property could also be adversely affected by a number of other factors, including the construction of new on-campus and off-campus housing, decreases in the general levels of rents for housing at competing properties, decreases in the number of students enrolled at one or more of the colleges or universities from which the property draws student-tenants and other general economic conditions.
 
Although we believe no participant in the student housing industry holds a dominant market share, we will compete with larger national companies, colleges and universities that have greater resources and superior access to capital. Furthermore, we believe that a number of other large national companies with substantial financial and marketing resources may be potential entrants in the student housing business. The activities of any of these companies, colleges or universities could cause an increase in competition for student-tenants and for the acquisition, development and management of other student housing properties, which could reduce the demand for our properties.
 
Our success depends on key personnel whose continued service is not guaranteed, and their departure could materially and adversely affect us.
 
We are dependent upon the efforts of our key personnel, particularly those of Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer. These individuals have extensive experience in our business, including sourcing attractive investment opportunities, development activities, financing activities, university relations and leasing. Messrs. Rollins and Hartnett have directed the operations of our predecessor entities and each has over 25 years of experience in providing service-enriched housing and approximately seven years of student housing experience. The loss of the services of either Mr. Rollins or Mr. Hartnett could materially and adversely affect us.
 
Adverse economic conditions and dislocation in the credit markets have had a material and adverse effect on us and may continue to materially and adversely affect us.
 
We have recently experienced unprecedented levels of volatility in the capital markets, a reduction in the availability of credit and intense recessionary pressures, which have had an


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adverse effect on our results of operations and our ability to borrow funds. For example, lenders are generally imposing more stringent lending standards and applying more conservative valuations to properties. This has limited the amount of indebtedness we have been able to obtain, and has impeded our ability to develop new properties and to replace construction financing with permanent financing. If these conditions continue, our business and our growth strategy may be materially and adversely affected.
 
The challenging economic environment may continue to adversely affect us by, among other things, limiting or eliminating our access to financing, which would adversely affect our ability to develop and refinance properties and pursue acquisition opportunities. Significantly more stringent lending standards and higher interest rates may reduce our returns on investment and increase our interest expense, which could adversely affect our financial performance and liquidity. Additionally, the limited amount of financing currently available may reduce the value of our properties, limit our ability to borrow against such properties and, should we choose to sell a property, impair our ability to dispose of such property at an attractive price or at all, which could materially and adversely affect us.
 
The current economic environment could reduce enrollment and limit the demand for our properties, which could materially and adversely affect us.
 
A continuation of ongoing economic conditions that adversely affect household disposable income, such as high unemployment levels, weak business conditions, reduced access to credit, increasing tax rates and high fuel and energy costs, could reduce overall student leasing or cause student-tenants to shift their leasing practices as students may determine to forego college or live at home and commute to college.
 
In addition, as a result of general economic weakness, many students may be unable to obtain student loans on favorable terms. If student loans are not available or their costs are prohibitively high, enrollment numbers for schools from which we draw student-tenants may decrease, resulting in a decrease in the demand for, and consequently the occupancy rates at and rental revenue from, our properties. Accordingly, the continuation or deterioration of current economic conditions could materially and adversely affect us.
 
In each of the past five fiscal years, we have experienced significant net losses.
 
We have incurred significant net losses in each of the past five fiscal years. These results have had a negative impact on our financial condition. Although we anticipate that upon the completion of this offering and our formation transactions we will be adequately capitalized and be able to resume our historical levels of development activity, there can be no assurance that our business will become profitable in the future and additional losses will not be incurred. If this trend continues in the future, our financial performance, liquidity and our ability to operate our business as a going concern could be materially and adversely affected.
 
If we are unable to acquire properties on favorable terms, our future growth could be materially and adversely affected.
 
Our future growth will depend, in part, upon our ability to acquire new properties on favorable terms. Acquisition opportunities may not be available to us on terms that we deem acceptable, and we may be unsuccessful in consummating acquisition opportunities. Our ability to acquire properties on favorable terms and successfully operate them may be adversely affected by:
 
  •   an inability to obtain financing on attractive terms or at all;


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  •   competition from other real estate investors;
 
  •   increased purchase prices and decreased expected yields due to competition from other potential acquirers;
 
  •   the need to make significant and unexpected capital expenditures to improve or renovate acquired properties;
 
  •   an inability to quickly and efficiently integrate acquisitions, particularly any acquisitions of portfolios of properties, into our existing operations;
 
  •   market conditions may result in higher than expected vacancy rates and lower than expected rental rates at acquired properties; and
 
  •   acquisition of properties subject to liabilities but without any recourse, or with only limited recourse, to the sellers, or with liabilities that are unknown to us, such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of our properties.
 
Our failure to identify and consummate property acquisitions on attractive terms or the failure of any acquired properties to meet our expectations could materially and adversely affect our future growth.
 
Our strategy of investing in properties located in medium-sized college and university markets may not be successful, which could materially and adversely affect us.
 
Our business strategy involves investing in properties located in medium-sized college and university markets, which are smaller than larger educational markets. Larger educational markets, such as Boston, Massachusetts or Washington, D.C., often have multiple colleges and universities that have larger enrollments than schools located in medium-sized college and university markets and attract students nationally and internationally. The colleges and universities that our properties draw student-tenants from typically have smaller enrollments than schools in larger educational markets and tend to attract students from within the region in which the school is located. If the schools in our markets experience reduced enrollment, for example due to adverse economic conditions, or are unable to attract sufficient students to achieve a desired class size, the pool of prospective student-tenants for our properties will be reduced. This could have the result of reducing our occupancy and lowering the revenue from our properties, which could materially and adversely affect our financial performance and liquidity.
 
Our indebtedness exposes us to a risk of default and will reduce our free cash flow, which could materially and adversely affect us.
 
Upon completion of this offering and the application of the net proceeds therefrom, our total consolidated indebtedness will be approximately $132.3 million. We also expect to incur significant additional indebtedness in connection with the development activities that we expect to undertake upon completion of this offering. Our debt service obligations will expose us to the risk of default and reduce cash available to invest in our business or pay distributions that are necessary to qualify and remain qualified as a REIT. Although we intend to limit the sum of the outstanding principal amount of our consolidated indebtedness to not more than     % of our total market capitalization, our board of directors may modify or eliminate this limitation at any time without the approval of our stockholders. Furthermore, our charter does not contain any limitation on the amount of indebtedness that we may incur. In the future we may incur


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substantial indebtedness in connection with the development or acquisition of additional properties.
 
In addition, the tax protection agreement will require us to maintain a minimum level of indebtedness of $      throughout the tax protection period in order to allow a sufficient amount of debt to be allocable to MXT Capital and its members to avoid certain adverse tax consequences. If we fail to maintain such minimum indebtedness throughout the tax protection period, and as a consequence MXT Capital or its members incur federal, state or local tax liabilities, we would be required to make indemnifying payments to them, which would inhibit our ability to reduce our indebtedness below the amount required to be maintained.
 
Our indebtedness and the limitations imposed on us by our indebtedness could have significant adverse consequences, including the following:
 
  •   we may be unable to borrow additional funds as needed or on favorable terms;
 
  •   we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of the indebtedness being refinanced;
 
  •   we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;
 
  •   we may default on our payment or other obligations as a result of insufficient cash flow or otherwise, which may result in a cross-default on our other obligations, and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases;
 
  •   to the extent that we incur unhedged floating rate debt, we will have exposure to interest rate risk; and
 
  •   foreclosures could create taxable income without accompanying cash proceeds, a circumstance which could hinder our ability to meet the distribution requirements necessary to enable us to qualify and remain qualified for taxation as a REIT.
 
Compliance with the provisions of our debt agreements, including the financial and other covenants, such as the maintenance of specified financial ratios, could limit our flexibility, and a default under these agreements could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs, which could materially and adversely affect us. We are currently not in compliance with certain covenants under the loan documentation relating to various lending arrangements to which we are party. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Consents or Waivers Under our Loan Documents.” We have obtained waivers for these covenant violations and intend to repay a substantial portion of our outstanding indebtedness with a portion of the net proceeds from this offering; upon completion of this offering and the application of the net proceeds therefrom, we expect to be in compliance with all applicable debt covenants. However, if we do not complete this offering, we would need to access alternative capital resources to meet our cash requirements, and there is no assurance that we would be successful in doing so. An inability to refinance maturing indebtedness or obtain alternative financing would have a material adverse affect on our business and financial condition.


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Joint venture investments could be materially and adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and disputes between our co-venturers and us.
 
Our properties located in Lawrence, Kansas, Moscow, Idaho, San Angelo and Huntsville, Texas, Conway, Arkansas and Statesboro, Georgia, comprising approximately 22.5% of our beds, will be held in a joint venture with HSRE. Additionally, we anticipate that we will enter into other joint ventures in the future. We may not have a controlling interest in a joint venture and may share responsibility with our co-venturer for managing the property held by the joint venture. Under such circumstances, we may not have sole decision-making authority regarding the joint venture’s property. Investments in joint ventures, under certain circumstances, involve risks not present when we invest in a property without the involvement of a third party. For example, our co-venturer may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our preferences, policies or objectives. Additionally, it is possible that our co-venturer might become bankrupt, fail to fund its share of required capital contributions or block or delay decisions that we believe are necessary. Such investments may also have the potential risk of impasses on decisions, such as sales, because neither we nor our co-venturers may have full control over the joint venture. Disputes between us and our co-venturer may result in litigation or arbitration that would increase our expenses and divert the attention of our officers and directors from other aspects of our business. Consequently, actions by or disputes with our co-venturers might result in subjecting properties owned by the joint venture vehicle to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party co-venturers. Any of foregoing factors could materially and adversely affect our joint-venture investments.
 
Our management team has not previously operated either a REIT or a public company, and this inexperience could materially and adversely affect us.
 
Our management team has not operated a business that has sought to qualify for taxation as a REIT or in compliance with the numerous technical restrictions and limitations set forth in the Internal Revenue Code applicable to REITs. Managing a portfolio of assets under the REIT requirements of the Internal Revenue Code may limit the types of investments we are able to make or the activities that we may undertake. Furthermore, our management team has not previously operated a public company. The various regulatory requirements applicable to public companies will involve a significant investment of management time, since these requirements were not previously applicable to us as a closely held private company. Both federal laws and regulations and the New York Stock Exchange (“NYSE”) rules impose numerous requirements relating to a public company’s corporate governance and disclosure obligations. We may be required to spend additional time addressing governance and disclosure obligations due to our inexperience, and we will be subject to fines and other penalties if we fail to comply in a timely manner with these obligations. Additionally, we may need to replace or supplement our existing management or staff in order to maintain operations as a public company, which may increase our costs of operations or delay implementation of our business strategies. We may not be able to operate a REIT or a public company as successfully or as efficiently as a more experienced management team.
 
Our investment in properties subject to ground leases exposes us to the potential loss of such properties upon the expiration or termination of the ground leases, and the realization of such loss could materially and adversely affect us. Our properties at the University of South Alabama are also subject to a right of first refusal that may inhibit our ability to sell them.
 
Our properties located on the campus of the University of South Alabama are subject to ground leases with affiliates of the university. We have another property located in Moscow,


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Idaho which is also subject to a ground lease. In addition, we may invest in additional properties that are subject to ground leases. As the lessee under a ground lease, we are exposed to the possibility of losing our leasehold interest in the land on which our buildings are located. A ground lease may not be renewed upon the expiration of its current term or terminated by the lessor pursuant to the terms of the lease if we do not meet our obligations thereunder.
 
In the event of an uncured default under either of our existing ground leases, the lessor may terminate our leasehold interest in the land on which our buildings are located. Any termination of our existing ground leases, unless in conjunction with the exercise of a purchase option, would also result in termination of our management agreement relating to the property. If we lose the leasehold interest in any of our properties, we could be materially and adversely affected.
 
Our properties located at the University of South Alabama are also subject to a right of first refusal pursuant to which the ground lessor entity related to the university has a right to purchase our leasehold interest in the relevant property in the event we decide to accept an offer to sell either property to a third party. This may inhibit our ability to sell these properties. Further, our right to transfer one of the on-campus properties is subject to the consent of the ground lessor, which consent may not be unreasonably withheld.
 
We may face risks associated with purchasing undeveloped land, and the occurrence of any of these risks could materially and adversely affect us.
 
We typically do not hold land for future development. We do, however, enter into purchase and sale agreements for undeveloped land from time to time in anticipation of obtaining construction financing and commencing development activities. A delay in obtaining construction financing may result in a delay in closing the acquisition of undeveloped land pursuant to a purchase and sale agreement. This may require us to pay to the seller of the land additional money in the form of an earnest money deposit, which may not be refundable or applicable against the purchase price.
 
It is possible that we will purchase property for development based on an erroneous estimate of the demand for student housing in the relevant market. This could result in us paying a purchase price for a property that ultimately proves to be in excess of such property’s value. As a result, we may acquire land for development at a cost that we may not be able to recover fully or on which we cannot build and develop a profitable student housing property. Real estate markets are highly uncertain and the value of such undeveloped land may fluctuate as a result of changing market conditions. Carrying costs can be significant and can result in losses or reduced margins. As a result, we may incur impairments on any land we acquire.
 
We may incur losses on interest rate swap and hedging arrangements, which could materially and adversely affect us.
 
We may in the future enter into agreements to reduce the risks associated with increases in interest rates. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to us if interest rates decline. If an arrangement is not indexed to the same rate as the indebtedness that is hedged, we may be exposed to losses to the extent the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other. Finally, nonperformance by the other party to the arrangement may subject us to increased credit risks. The occurrence of any of the foregoing could materially and adversely affect us.


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Our inability to pass-through increases in taxes or other real estate costs to our student-tenants could materially and adversely affect our financial performance and liquidity.
 
We generally are not able to pass through to our student-tenants under existing leases increases in taxes, including real estate and income taxes, or other real estate related costs, such as insurance or maintenance. Consequently, unless we are able to off-set any such increases with sufficient revenues, our financial performance and liquidity may be materially and adversely affected by any such increases.
 
The prior performance of our predecessor entities may not be indicative of our future performance.
 
All of our properties have been acquired or developed by our predecessor entities within the past six years and have limited operating histories. Consequently, the historical operating results of our properties and the financial data set forth in this prospectus may not be indicative of our future performance. The operating performance of the properties may decline and we could be materially and adversely affected.
 
As a result of operating as a public company, we will incur significant increased costs and our management will be required to devote substantial time to new compliance requirements, which could materially and adversely affect us.
 
We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses, as well as expend significant management time, relating to various requirements applicable to public companies that were not applicable to our predecessor as a closely held private company. The Securities Exchange Act of 1934, as amended, or the “Exchange Act,” the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” and the NYSE rules impose numerous requirements relating to a public company’s corporate governance and disclosure obligations. Compliance with these requirements will require us to hire additional employees, adopt new policies, procedures and controls, and cause us to incur significant costs. For example, we will be required to have specified board committees, adopt internal controls over financial reporting and disclosure controls and procedures, and file annual, quarterly and other reports and information with the SEC. If our prior history of incurring significant net losses continues following this offering, we will be unable to expend the funds necessary to hire additional employees and otherwise comply with our increased disclosure and reporting obligations. Our lack of prior experience in the operation of a public company may reduce the likelihood that we will be able to identify compliance and disclosure issues on a timely basis and our failure to address these issues could materially and adversely affect us due to, fines and penalties associated with compliance failure, an inability to utilize certain SEC forms and offering methods to access the public equity and debt markets quickly and the inability to otherwise enjoy the benefits associated with our status as a public company. If we identify any issues in complying with requirements applicable to public companies, we would likely incur additional costs remediating those issues and such costs could be significant, and the existence of those issues could materially and adversely affect us, our reputation or investor perception of us. Failure to remediate compliance issues, whether due to cost or otherwise, may result in negative action against us, including fines, civil and criminal penalties or delisting from the NYSE. Identification of these types of compliance issues could also make it more difficult and expensive for us to obtain director and officer liability insurance, and we could be required to accept reduced policy limits and insurance coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it could become more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Any of the foregoing costs or factors could materially and adversely affect us.


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We will be subject to the requirements of Section 302 and 404 of the Sarbanes-Oxley Act, which will be costly and challenging.
 
Our management will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting, pursuant to Section 302 of the Sarbanes-Oxley Act, as of December 31 subsequent to the year in which the registration statement of which this prospectus forms a part becomes effective. Internal controls are intended to allow management or employees in the normal course of performing their functions to prevent or detect misstatements on a timely basis. A deficiency in internal controls exists when their design or operation does not permit such prevention or detection on a timely basis. Section 404 of the Sarbanes-Oxley Act requires our independent registered public accounting firm to deliver an attestation report on the operating effectiveness of our internal controls over financial reporting in conjunction with their opinion on our audited financial statements as of the same date.
 
Substantial work on our part is required to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any deficiencies identified and test their operation. This process is expected to be both costly and challenging. Our Predecessor had not previously prepared consolidated financial statements. Additionally, the financial statements of some of the entities that are included in our Predecessor’s financial statements were not individually audited. Consequently, it was necessary to consolidate numerous financial statements, some of which were unaudited, in anticipation of the audit of our Predecessor’s financial statements. In the course of such audit, it became necessary to prepare and record a number of adjustments to correct the initial combined financial statements. It was determined that the adjustments arose from deficiencies within our internal control over financial reporting. As a closely held private company, our Predecessor has not been required to operate in compliance with the foregoing requirements of the Sarbanes-Oxley Act. We will be required to design, implement and effectively execute and monitor additional controls in order to comply with these requirements and remediate any identified deficiencies. We intend to bring our operations into compliance with Section 404 of the Sarbanes-Oxley Act within one year following the completion of this offering as required, and comply with the other mandates of the Sarbanes-Oxley Act, but there can be no assurance that such compliance will be achieved or maintained. If we are unable to implement and monitor effective controls, we may be unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act within the required time period.
 
We cannot give any assurances that we will successfully remediate any material weaknesses identified in connection with our compliance with the provisions of Sections 302 and 404 of the Sarbanes-Oxley Act. The existence of any material weakness would preclude a conclusion by management and our registered independent public accounting firm that we maintained effective internal control over financial reporting. Our management may be required to devote significant time and incur significant expense to remediate any material weaknesses that may be discovered and may not be able to remediate any material weaknesses in a timely manner. The existence of a material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, any of which could materially and adversely affect us.
 
Reporting of on-campus crime statistics required of colleges and universities may negatively impact our properties.
 
Federal and state laws require colleges and universities to publish and distribute reports of on-campus crime statistics, which may result in negative publicity and media coverage associated with crimes occurring in the vicinity of, or on the premises of, our on-campus properties. Reports


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of crime or other negative publicity regarding the safety of the students residing on, or near, our properties may have an adverse effect on both our on-campus and off-campus properties.
 
We may be subject to liabilities from litigation which could materially and adversely affect us.
 
We may become involved in legal proceedings, including consumer, employment, tort or commercial litigation that, if decided adversely to or settled by us and not adequately covered by insurance, could result in liabilities that could materially and adversely affect us.
 
Risks Related to the Real Estate Industry
 
Our performance and the value of our properties are subject to risks associated with real estate and with the real estate industry, which could materially and adversely affect us.
 
Our ability to make distributions to our stockholders depends on our ability to generate cash revenues in excess of our expenses, including expenses associated with our development activities, indebtedness and capital expenditure requirements. The occurrence of certain events and conditions that are generally applicable to owners and operators of real estate, many of which are beyond our control, could materially and adversely affect us. These events and conditions include:
 
  •   adverse national, regional and local economic conditions;
 
  •   rising interest rates;
 
  •   oversupply of student housing in our markets, increased competition for student-tenants or reduction in demand for student housing;
 
  •   inability to collect rent from student-tenants;
 
  •   vacancies at our properties or an inability to lease our properties on favorable terms;
 
  •   inability to finance property development and acquisitions on favorable terms;
 
  •   increased operating costs, including insurance premiums, utilities and real estate taxes;
 
  •   the need for capital expenditures at our properties;
 
  •   costs of complying with changes in governmental regulations;
 
  •   the relative illiquidity of real estate investments; and
 
  •   civil unrest, acts of God, including earthquakes, floods, hurricanes and other natural disasters, which may result in uninsured losses, and acts of war or terrorism.
 
In addition, periods of economic slowdown or recession, such as the one the global economy is currently experiencing, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in occupancy rates and rental revenue or an increased incidence of defaults under our existing leases, which could impair the value of our properties or reduce our cash flow.


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Illiquidity of real estate investments could significantly impede our ability to sell our properties or otherwise respond to adverse changes in the performance of our properties, which could materially and adversely affect us.
 
From time to time, we may determine that it is in our best interest to sell one or more of our properties. However, because real estate investments are relatively illiquid, we may encounter difficulty in finding a buyer in a timely manner should we desire to sell one of our properties, especially if market conditions are poor at such time. Selling real estate has been difficult recently, since the availability of credit has become more limited, as lending standards have become more stringent. As a result, potential buyers have experienced difficulty in obtaining financing necessary to purchase a property. In addition, our properties are specifically designed for use as student housing, which could limit their marketability or affect their values for alternative uses. Consequently, should we desire to sell one or more of our properties, our ability to do so promptly or on terms that we deem to be acceptable may be limited, which could materially and adversely affect us.
 
We also may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct any such defects or to make any such improvements. In connection with any future property acquisitions, we may agree to provisions that materially restrict our ability to sell the property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be secured by or repaid with respect to such property.
 
In addition, in order to qualify for taxation as a REIT and to maintain such qualification, the Internal Revenue Code limits our ability to sell properties held for less than two years, which may cause us to incur losses thereby reducing our cash flows. These factors and any others that would impede our ability to respond to adverse changes in the performance of any of our properties or a need for liquidity could materially and adversely affect us.
 
Finally, MXT Capital will enter into a tax protection agreement with us that significantly restricts our ability to sell our properties. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of any of our properties for the tax protection period in a transaction that would cause MXT Capital or its members to realize built-in gain to such properties at the time of their contribution to our Operating Partnership. All of our properties will have such built-in gain. If we sell one or more of our properties during the tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to it or its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments.
 
Increases in property taxes would increase our operating costs, which could materially and adversely affect our financial performance and liquidity.
 
Each of our properties will be subject to real and personal property taxes. These taxes may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. If property taxes increase, our operating costs will increase, and therefore our financial performance and liquidity could be materially and adversely affected.
 
We could incur significant costs related to government regulation and private litigation over environmental matters, which could materially and adversely affect us.
 
Under various environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA,” a current or previous owner or operator of real


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estate may be liable for contamination resulting from the release or threatened release of hazardous or toxic substances or petroleum at that property. Additionally, an entity that arranges for the disposal or treatment of a hazardous or toxic substance or petroleum at another property may be held jointly and severally liable for the cost of investigating and cleaning up such property or other affected property. Such parties are known as potentially responsible parties, or PRPs. These environmental laws often impose liability regardless of whether the PRP knew of, or was responsible for, the presence of the contaminants, and the costs of any required investigation or cleanup of these substances can be substantial. PRPs may also be liable to parties who have claims for contribution in connection with any such contamination, such as other PRPs or state and federal governmental agencies. The liability is generally not limited under such laws and therefore could easily exceed the property’s value and the assets of the liable party.
 
The presence of contamination, hazardous materials or environmental issues, or the failure to remediate such conditions, at a property may expose us to third-party liability for personal injury or property damage, remediation costs or adversely affect our ability to sell, lease or develop the property or to borrow using the property as collateral, which could materially and adversely affect us.
 
Environmental laws also impose ongoing compliance requirements on owners and operators of real estate. Environmental laws potentially affecting us address a wide variety of matters, including, but not limited to, asbestos-containing building materials, or “ACBMs,” storage tanks, storm water and wastewater discharges, lead-based paint, radon, wetlands and hazardous wastes. Failure to comply with these laws could result in fines and penalties or expose us to third-party liability, which could materially and adversely affect us. Some of our properties may have conditions that are subject to these requirements and we could be liable for such fines or penalties or liable to third parties, as described below in “Business and Properties—Regulation—Environmental Matters.”
 
The conditions at some of our properties may expose us to liability and remediation costs related to environmental matters, which could materially and adversely affect us.
 
Certain of our properties may contain, or may have contained, ACBMs. Environmental laws require that ACBMs be properly managed and maintained, and may impose fines and penalties on building owners and operators for failure to comply with these requirements. Also, some of our properties may contain, or may have contained, or are adjacent to or near other properties that may contain or may have contained storage tanks for the storage of petroleum products or other hazardous or toxic substances. Any of these conditions create the potential for the release of these contaminants. Third parties may be permitted by law to seek recovery from owners or operators for personal injury or property damage arising from such tanks. Additionally, third parties may be permitted by law to seek recovery from owners or operators for personal injury or property damage associated with exposure to these or other contaminants that may be present on, at or under the properties. Furthermore, some of our properties include regulated wetlands on undeveloped portions of such properties and mitigated wetlands on or near our properties, the existence of which can delay or impede development or require costs to be incurred to mitigate the impact of any disturbance. Absent appropriate permits, we can be held responsible for restoring wetlands and be required to pay fines and penalties, which could materially and adversely affect us.
 
Over the past several years there have been an increasing number of lawsuits against owners and operators of properties alleging personal injury and property damage caused by the presence of mold in real estate. Mold growth can occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Concern about indoor exposure to mold has been increasing as


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some molds have been shown to produce airborne toxins and irritants and exposure to these and other types of molds may lead to adverse health effects and symptoms, including allergic or other reactions. Some of our properties may contain microbial matter such as mold and mildew. The presence of significant mold at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property and could expose us to liability from student-tenants, employees and others if property damage or health concerns arise, which could materially and adversely affect us.
 
If any of our properties are not properly connected to a water or sewer system, or if the integrity of such systems are breached, microbial matter or other contamination can develop. If this were to occur, we could incur significant remedial costs and we could also be subject to private damage claims and awards, which could be material. If we become subject to claims in this regard, it could materially and adversely affect us and our insurability for such matters in the future.
 
Independent environmental consultants have conducted Phase I environmental site assessments on all of our properties. These Phase I environmental site assessments are intended to evaluate information regarding the environmental condition of the surveyed property and surrounding properties based generally on visual observations, interviews and the review of publicly available information. These assessments do not typically take into account all environmental issues including, but not limited to, testing of soil or groundwater, a comprehensive asbestos survey or an invasive inspection for the presence of lead-based paint, radon or mold contamination. As a result, these assessments may have failed to reveal all environmental conditions, liabilities, or other compliance issues affecting our properties. Material environmental conditions, liabilities, or compliance issues may have arisen after the assessments were conducted or may arise in the future.
 
In addition, future laws, ordinances or regulations may impose material additional environmental liabilities. We cannot assure you that the cost of future environmental compliance or remedial measures will not affect our ability to make distributions to our stockholders or that such costs or other remedial measures will not be material to us.
 
In the event we decided to sell one of our properties, the presence of hazardous substances on such property may limit our ability to sell it on favorable terms or at all, and we may incur substantial remediation costs.
 
The discovery of material environmental liabilities at one or more of our properties could subject us to unanticipated significant costs, which could materially and adversely affect us.
 
We may incur significant costs complying with the Americans with Disabilities Act, the Fair Housing Act and similar laws, which could materially and adversely affect us.
 
Under the Americans with Disabilities Act of 1990, or the “ADA,” all public accommodations must meet various federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements may require modifications to our properties, such as the removal of access barriers or restrict our ability to renovate or develop our properties in the manner we desire. In addition, in June 2008, the Department of Justice proposed a substantial number of changes to the accessibility guidelines under the ADA. In January of 2009, President Obama suspended final publication and implementation of these regulations, pending comprehensive review by his administration. If implemented as proposed, the new guidelines could cause some of our properties to incur costly measures to become fully compliant.


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Additional federal, state and local laws may also require us to make similar modifications or impose similar restrictions on us. For example, the Fair Housing Act, or “FHA,” requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped.
 
We have not conducted an audit or investigation of all of our properties to determine our compliance with present requirements of the ADA, FHA or any similar laws. Noncompliance with any of these laws could result in us incurring significant costs to make substantial modifications to our properties or in the imposition of fines or an award or damages to private litigants. We cannot predict the ultimate amount of the cost of compliance with the ADA, FHA or other legislation. If we incur substantial costs to comply with the ADA, FHA or any other legislation, we could be materially and adversely affected.
 
We may incur significant costs complying with other regulatory requirements, which could materially and adversely affect us.
 
Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we might incur governmental fines or private damage awards. Furthermore, existing requirements could change and require us to make significant unanticipated expenditures, which could materially and adversely affect us.
 
Uninsured losses or losses in excess of insured limits could materially and adversely affect us.
 
We carry comprehensive liability, fire, extended coverage, terrorism and rental loss insurance covering all of our properties. Our insurance includes coverage for earthquake damage to properties located in seismically active areas, windstorm damage to properties exposed to hurricanes, and terrorism insurance on all of our properties. In each case, we believe the coverage limits and applicable deductibles are commercially reasonable. All insurance policies are subject to coverage extensions that are typical for our business. We do not carry insurance for generally uninsured losses such as loss from riots or acts of God.
 
In the event we experience a loss which is uninsured or which exceeds our policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from such property. In addition, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a property after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive might be inadequate to restore our economic position with respect to the damaged or destroyed property. Furthermore, in the event of a substantial loss at one or more of our properties that is covered by one or more policies, the remaining insurance under these policies, if any, could be insufficient to adequately insure our other properties. In such event, securing additional insurance policies, if possible, could be significantly more expensive than our current policies. Any loss of these types may materially and adversely affect us.
 
Future terrorist attacks in the U.S. or an increase in incidents of violence on college campuses could reduce the demand for, and the value of, our properties, which could materially and adversely affect us.
 
Future terrorist attacks in the U.S., such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and acts of war, or threats of the same, could reduce the demand for, and the value of, our properties. Any such event in any of the markets in which our properties are located would make it difficult for us to maintain the affected property’s occupancy


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or to re-lease the property at rates equal to or above historical rates, which could materially and adversely affect us.
 
Incidents of violence on college campuses could pose similar problems, with respect to the potential for a reduction of demand for our properties if such an incident were to occur on a college campus in one of our markets. Such an event in any of our markets could not only adversely affect our occupancy rates, but would also likely lead to increased operating expenses for such properties due to increased security costs, which would likely be necessary to reassure our student-tenants in the wake of such an incident. Any such increase in operating expenses may have a material adverse effect on the results of operations of the affected property.
 
In addition, terrorist attacks or violent incidents could directly impact the value of our properties through damage, destruction or loss and the availability of insurance for such acts may be limited or prohibitively expensive. If we receive casualty proceeds, we may not be able to reinvest such proceeds profitably or at all, and we may be forced to recognize taxable gain on the affected property, which could materially and adversely affect us.
 
Risks Related to Our Company and Structure
 
Provisions of our charter allow our board of directors to authorize the issuance of additional securities, which may limit the ability of a third party to acquire control of us through a transaction that our stockholders believe to be in their best interest.
 
Upon completion of this offering, our charter will authorize our board of directors to issue up to 90,000,000 shares of common stock and up to 10,000,000 shares of preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue and to classify or reclassify any unissued common stock or preferred stock and to set the preferences, rights and other terms of the classified or reclassified stock. As a result, our board of directors may authorize the issuance of additional stock or establish a series of common or preferred stock that may have the effect of delaying, deferring or preventing a change in control of our company, including through a transaction at a premium over the market price of our common stock, even if our stockholders believe that a change in control through such a transaction is in their best interest.
 
Provisions of Maryland law may limit the ability of a third party to acquire control of us, which, in turn, may negatively affect our stockholders’ ability to realize a premium over the market price of our common stock.
 
Certain provisions of the Maryland General Corporation Law, or the “MGCL,” may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the market price of our common stock, including:
 
  •   The Maryland Business Combination Act that, subject to limitations, prohibits certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our voting capital stock) or an affiliate of any interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and special stockholder voting requirements on these combinations; and


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  •   The Maryland Control Share Acquisition Act that provides that our “control shares” (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
 
By resolution of our board of directors, we have opted out of the business combination provisions of the MGCL and provided that any business combination between us and any other person is exempt from the business combination provisions of the MGCL, provided that the business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such persons). Pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, our board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.
 
Additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which we do not yet have. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us that otherwise could provide our stockholders with the opportunity to realize a premium over the market price of our common stock.
 
The ownership limitations in our charter may restrict or prevent you from engaging in certain transfers of our common stock, which may delay or prevent a change in control of us that our stockholders believe to be in their best interest.
 
In order for us to qualify as a REIT for each taxable year after 2010, no more than 50% in value of the outstanding shares of our common stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal income tax laws to include various kinds of entities) during the last half of any taxable year. Attribution rules in the Internal Revenue Code determine if any individual or entity actually or constructively owns our common stock under this requirement. Additionally, at least 100 persons must beneficially own shares of our common stock during at least 335 days of a taxable year for each taxable year after 2010. To assist us in qualifying as a REIT, our charter contains a stock ownership limit which provides that, subject to certain exceptions, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate. Generally, any of our shares of common stock owned by affiliated owners will be added together for purposes of the stock ownership limit.
 
If anyone transfers shares of our stock in a way that would violate the stock ownership limit or prevent us from qualifying as a REIT under the federal income tax laws, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the stock ownership limit or we will consider the transfer to be null and void from the outset, and the intended transferee of those shares will be deemed never to have owned the shares. Anyone who acquires shares of our common stock in violation of the stock ownership limit or the other restrictions on transfer in our charter bears the risk of suffering a financial loss when the shares are redeemed or sold if their market price falls between the date of purchase and the date of redemption or sale.


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The constructive ownership rules under the Internal Revenue Code are complex and may cause stock owned actually or constructively by a group of related individuals or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our stock (or the acquisition of an interest in an entity that owns, actually or constructively, our stock) by an individual or entity, could, nevertheless cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% of our outstanding stock and therefore they would be subject to the stock ownership limit. Our charter, however, allows exceptions to be made to this limitation if our board of directors determines that such exceptions will not jeopardize our tax status as a REIT.
 
In addition, the stock ownership limit and the other restrictions on transfer in our charter may have the effect of delaying, deferring or preventing a third party from acquiring control of us, whether such a transaction involved a premium price for our common stock or otherwise was in the best interest of our stockholders.
 
Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit the recourse available in the event actions are taken that are not in the best interest of our stockholders.
 
Maryland law provides that a director has no liability in connection with the director’s management of the business and affairs of a corporation if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter exculpates our directors and officers from liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our charter authorizes us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each director or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to fund the defense costs incurred by our directors and officers. As a result, we and our stockholders may have more limited rights against our directors and officers, which could limit the recourse available in the event actions are taken that are not in our stockholders’ best interest.
 
Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management that our stockholders believe to be in their best interest.
 
Our charter provides that a director may be removed only for cause (as defined in our charter) and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors. Our charter also provides that vacancies on our board of directors may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements prevent stockholders from removing directors except for cause and with a substantial affirmative vote and from replacing directors with their own nominees. As a result, a change in the management of our company that our stockholders believe is in their best interest may be delayed, deferred or prevented.


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Our board of directors has approved very broad investment guidelines for us and will not review or approve each investment decision made by our management team.
 
Our management team is authorized to follow broad investment guidelines and, therefore, has great latitude in determining which are the proper investments for us, as well as the individual investment decisions. Our management team may make investments with lower rates of return than those anticipated under current market conditions and/or may make investments with greater risks to achieve those anticipated returns.
 
The ability of our board of directors to change some of our policies without the consent of our stockholders may lead to the adoption of policies that are not in the best interest of our stockholders.
 
Our major policies, including our policies with respect to investments, leverage, financing, growth, debt and capitalization, will be determined by our board of directors or those committees or officers to whom our board of directors may delegate such authority. Our board of directors will also establish the amount of any dividends or distributions that we may pay to our stockholders. Our board of directors or the committees or officers to which such decisions may be delegated will have the ability to amend or revise these and our other policies at any time without stockholder vote. Accordingly, our stockholders may not have control over changes in our policies, and we may adopt policies that may not prove to be in the best interests of our stockholders.
 
As a result of our formation transactions, which were not negotiated on an arm’s length basis, our existing investors will receive substantial economic benefits from this offering.
 
MXT Capital will receive      OP units for the contribution of its interests in the predecessor entities and its student housing business and $4.5 million of the net proceeds from this offering will be used for the repayment of certain indebtedness. Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, by virtue of their indirect ownership in MXT Capital, and therefore the various entities that own interests in the predecessor entities, will be entitled to receive a significant portion of the benefits of this offering received by MXT Capital. MXT Capital, through Campus Crest Group, and the Ricker Group were the principal prior owners of our predecessor entities and MXT Capital played a significant role in structuring our formation. In the course of structuring our formation, MXT Capital had the ability to influence the type and level of benefits that it and our executive officers would receive from us. It also had the ability to influence the other terms of our formation transactions, including, without limitation, the representations and warranties that it made to us in our formation transactions and the indemnities that it provided to us for breaches of such representations and warranties. In addition, as a result of this offering and the application of the net proceeds therefrom, Mr. Rollins and Mr. Hartnett will be released from certain personal guarantees with respect to mortgage and construction indebtedness with aggregate principal amounts of $      million and $      million, respectively, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness, as described below. MXT Capital will also receive Campus Crest Group’s interests in two parcels of land consisting of 20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties. In addition, we will enter into a registration rights agreement with MXT Capital pursuant to which we will agree, among other things, to register the resale of any common stock that may be exchanged for the OP units issued in our formation transactions.
 
The Ricker Group will receive approximately $26.7 million from the net proceeds from this offering and 266,667 OP units for the contribution of its interests in the predecessor entities and its interest in the entities that own fee interests in certain properties that were subject to ground


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leases such that our operating partnership will have, following the completion of this offering and our formation transactions, fee simple title to the real estate that is the subject of the leases. Following this transfer, none of the predecessor entities other than Campus Crest at Mobile, LLC and Campus Crest at Mobile Phase II, LLC (which own The Grove at Mobile in Mobile, AL) and Campus Crest at Moscow, LLC (which owns The Grove at Moscow in Moscow, ID) shall be subject to any ground lease. In addition, as a result of this offering and the use of the net proceeds therefrom, Mr. Ricker will be released from certain personal guarantees with respect to mortgage and construction indebtedness in the aggregate amount of $      million, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness described below.
 
Certain third-party investors will receive in aggregate approximately $10.7 million from the net proceeds from this offering and approximately 53,000 OP units for the contribution of their interests in the predecessor entities.
 
We will use approximately $4.0 million of the net proceeds from this offering to repay our indebtedness to Capital Bank, an entity in which the Ricker Group has an ownership interest and of which Carl H. Ricker, Jr. is a director.
 
We will use approximately $6.0 million of the net proceeds from this offering to repay indebtedness owed by us to RHR, LLC, an entity owned by MXT Capital and the Ricker Group. RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us.
 
Since we did not conduct arm’s length negotiations with our existing investors with respect to the terms of our formation transactions, the terms of the agreements we reached with these investors may not be as favorable to us as if they were so negotiated.
 
Members of our management and board of directors will be holders of OP units, and their interests may differ from those of our stockholders.
 
After the consummation of this offering, members of our management and board of directors will also be direct or indirect holders of OP units. As holders of OP units, they may have conflicting interests with our stockholders. For example, they may have different tax positions from our stockholders, which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new indebtedness or refinance existing indebtedness and how to structure future transactions. As a result, our management and board of directors may implement policies or make decisions that are not in the best interest of our stockholders.
 
Members of our management will be beneficiaries of a tax protection agreement that will significantly restrict our ability to sell our properties and may require us to maintain indebtedness that we otherwise would not.
 
MXT Capital will enter into a tax protection agreement with us. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of any of our properties during the tax protection period in a transaction that would cause MXT Capital or its members to realize built-in gain. All of our properties will have such built-in gain. If we sell one or more of our properties during the tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to it or its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments. Consequently, our ability to sell or dispose of our properties will be


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substantially restricted by this obligation to make payments to MXT Capital during the tax protection period if we sell a property.
 
The tax protection agreement will also require us to maintain a minimum level of indebtedness of $      throughout the tax protection period in order to allow a sufficient amount of debt to be allocable to MXT Capital and its members to avoid certain adverse tax consequences. If we fail to maintain such minimum indebtedness throughout the tax protection period, and as a consequence MXT Capital or its members incur federal, state or local tax liabilities, we will be required to make indemnifying payments to them, computed in the manner described in the preceding paragraph.
 
We will enter into employment agreements with certain of our executive officers that will require us to make payments in the event such officer’s employment is terminated by us without cause or by such officer for good reason. This may make it difficult for us to effect changes to our management or limit the ability of a third party to acquire control of us that would otherwise be in the best interest of our stockholders.
 
The employment agreements that we will enter into with certain of our executive officers upon completion of this offering provide benefits under certain circumstances that could make it more difficult for us to terminate these officers. Therefore, even if we sought to replace these officers, it may not be economically viable for us to do so. Furthermore, because an acquiring company would likely seek to replace these officers with their own personnel, these employment agreements could have the effect of delaying, deterring or preventing a change in control of our company that would otherwise be in the best interest of our stockholders.
 
After the consummation of this offering and our formation transactions, our primary assets will be our general partner interest in our operating partnership and OP units and, as a result, we will depend on distributions from our operating partnership to pay dividends and expenses.
 
After the consummation of this offering and our formation transactions, we will be a holding company and will have no material assets other than our general partner interest and OP units. We intend to cause our operating partnership to make distributions to its limited partners, including us, in an amount sufficient to allow us to qualify as a REIT for federal income tax purposes and to pay all our expenses. To the extent we need funds and our operating partnership is restricted from making distributions under applicable law, agreement or otherwise, or if our operating partnership is otherwise unable to provide such funds, the failure to make such distributions could adversely affect our liquidity and financial condition and our ability to make distributions to our stockholders.
 
Following the consummation of this offering and the formation transactions, we will have outstanding indebtedness under our mortgage loan with Silverton Bank of approximately $71.5 million secured by four of our properties, that will restrict our operating partnership’s ability to pay distributions if we are in default under this mortgage loan. We would be in default under this loan if we fail to maintain a debt service coverage ratio of not less than 1.2 to 1.0; debt yield percentage of not less than 9.0% and a loan-to-value ratio of not more than 80%.
 
We operate through a partnership structure, which could materially and adversely affect us.
 
Our primary property-owning vehicle is our operating partnership, of which we are the sole general partner. Our acquisition of properties through our operating partnership in exchange, in part, for OP units may permit certain tax deferral advantages to the sellers of those properties.


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Since the properties contributed to our operating partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause material and adverse tax consequences to the limited partners who contributed such properties. Although we, as the sole general partner of our operating partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, we have agreed to indemnify MXT Capital for certain tax consequences related to our properties and there can be no assurance that our operating partnership will not acquire properties in the future subject to material restrictions designed to minimize the adverse tax consequences to the limited partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage our properties, which could materially and adversely affect us.
 
We have fiduciary duties as sole general partner of our operating partnership which may result in conflicts of interest in representing your interests as stockholders of our company.
 
After the consummation of this offering, conflicts of interest could arise in the future as a result of the relationship between us, on the one hand, and our operating partnership or any partner thereof, on the other. We, as the sole general partner of our operating partnership, will have fiduciary duties to the other limited partners in our operating partnership under Delaware law. At the same time, our directors and officers have duties to us and our stockholders under applicable Maryland law in connection with their management of us. Our duties as the sole general partner of our operating partnership may come in conflict with the duties of our directors and officers to us and our stockholders. For example, those persons holding OP units will have the right to vote on certain amendments to the partnership agreement (which require approval by a majority in interest of the limited partners, including us) and individually to approve certain amendments that would adversely affect their rights. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. We are unable to modify the rights of limited partners to receive distributions as set forth in the partnership agreement in a manner that adversely affects their rights without their consent, even though such modification might be in the best interest of our stockholders. Our partnership agreement will provide that if there is a conflict between the interests of our stockholders, on one hand, and the interests of the limited partners, on the other, we will endeavor in good faith to resolve the conflict in a manner not adverse to either our stockholders or the limited partners; provided, however, that for so long as we own a controlling interest in our operating partnership, we have agreed to resolve any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners in favor of our stockholders.
 
Changes in accounting rules, assumptions and/or judgments could materially and adversely affect us.
 
Accounting rules and interpretations for certain aspects of our operations are highly complex and involve significant assumptions and judgment. These complexities could lead to a delay in the preparation and public dissemination of our financial statements. Furthermore, changes in accounting rules and interpretations or in our accounting assumptions and/or judgments, such as asset impairments, could significantly impact our financial statements. Under any of these circumstances, we could be materially and adversely affected.


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Risks Related to this Offering
 
We may not be able to make an initial distribution or maintain any initial, or any subsequent, distribution rate and we may be required to fund the minimum distribution necessary to qualify for taxation as a REIT from sources that could reduce our cash flows.
 
Our ability to fund any distributions out of operating cash flow will depend, in part, upon the receipt of cash flow from our properties. If we need to fund future distributions from working capital, or if we reduce our distribution rate, our stock price may be adversely affected. To the extent that we fund any distributions from working capital, our cash available for investment in our business, including for property development and acquisition purposes, will decrease.
 
In addition, in order to qualify for taxation as a REIT, among other requirements, we must make distributions to stockholders aggregating annually 90% of our net taxable income, excluding net capital gains. To the extent that, in respect of any calendar year, cash available for distribution to our stockholders is less than our REIT taxable income, we would be required to fund the minimum distribution necessary to qualify for taxation as a REIT from other sources, which could include asset sales or borrowings. Funding a distribution through asset sales or borrowings could reduce our cash flow from operations, increase our interest expense and decrease our cash available for investment in our business.
 
Any distributions in excess of our current and accumulated earnings and profits will not be taxable to a holder to the extent that they do not exceed the adjusted basis of the holder’s shares in respect of which the distributions were made, but rather, will reduce the adjusted basis of these shares. To the extent that such distributions exceed the adjusted basis of a stockholder’s shares, they will generally be included in income as capital gains. For a more complete discussion of the tax treatment of distributions to our stockholders, see “Federal Income Tax Considerations.”
 
A public market for our common stock may never develop and your ability to sell your shares of our common stock may be limited.
 
Prior to this offering, there has been no public market for our common stock. We intend to apply to have our common stock listed on the NYSE under the symbol ‘‘CCG.” However, an active trading market for our common stock may never develop or, even if one does develop, may not be sustained. In the absence of an active trading market, an investor may be unable to liquidate an investment in shares of our common stock at a favorable price or at all. The initial public offering price has been determined by us and the representative of the underwriters. We cannot assure you that the price at which the common stock will sell in the public market after the closing of this offering will not be lower than the price at which they are sold by the underwriters.
 
Common stock eligible for future sale may adversely affect the market price of our common stock.
 
We cannot predict the effect, if any, of future issuances of shares of our common stock or the availability of shares of our common stock for future sale on the market price of our common stock. Any sales of a substantial number of shares of our common stock in the public market (including shares issued to our directors and officers), or the perception that such sales might occur, may cause the market price of our common stock to decline.
 
We, each of our directors and executive officers, MXT Capital and Carl H. Ricker, Jr. have agreed, with limited exceptions, that we and they will not, without the prior written consent of the representative of the underwriters, for a period of one year after the date of this prospectus


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(subject to extension under certain circumstances), among other things, directly or indirectly, offer to sell, sell or otherwise dispose of any shares of our common stock or securities that are convertible into or exchangeable for shares of common stock or file a registration statement with the SEC relating to the offering of any shares of our common stock or such convertible or exchangeable securities. In addition, we have agreed with the underwriters that we will not, during the same period of time, issue any shares of our common stock in exchange for any OP units. However, the representative may, at any time, release all or any portion of the shares of common stock subject to the foregoing lock-up provisions. If these restrictions are waived, the affected shares of common stock may be available for sale into the market which could reduce the market price of our common stock.
 
Under our 2010 Incentive Award Plan, we have the ability to issue options, stock appreciation rights, restricted stock and restricted stock units, performance shares, performance units, dividend equivalents and other stock-based awards to our executive officers, employees and non-employee directors. In connection with this offering, we intend to file a registration statement on Form S-8 to register all shares of common stock reserved for issuance under our 2010 Incentive Award Plan, and once we register these shares, they can be freely sold in the public market after issuance, subject to the terms of the plan and the lock-up provisions discussed above. MXT Capital will enter into a registration rights agreement with us. Pursuant to that agreement, we will agree, among other things, to register the resale of any common stock that may be exchanged for the OP units issued in our formation transactions. This agreement requires us to seek to register all common stock that may be exchanged for OP units effective as of that date which is 12 months following completion of this offering on a shelf registration statement under the Securities Act. We also may issue from time to time common stock or cause our operating partnership to issue OP units in connection with the acquisition of properties and we may grant demand or piggyback registration rights in connection with these issuances. Registration of the sales of these shares of our common stock would facilitate their sale into the public market. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may have the effect of reducing the market price of our common stock and impeding our ability to raise future capital. In addition, any future sales of shares of our common stock may dilute the value of our common stock.
 
The market price of our common stock may be volatile due to numerous circumstances, some of which are beyond our control.
 
Even if an active trading market develops for our common stock, the market price of our common stock may be highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the market price of our common stock. Some of the factors that could negatively affect the market price or result in fluctuations in the market price of our common stock include:
 
  •   actual or anticipated variations in our quarterly operating results;
 
  •   changes in our financial performance or earnings estimates;
 
  •   increases in market interest rates;
 
  •   changes in market valuations of similar companies;
 
  •   adverse market reaction to any indebtedness we incur in the future;
 
  •   additions or departures of key personnel;


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  •   actions by our stockholders;
 
  •   speculation in the press or investment community;
 
  •   general market, economic and political conditions, including the recent economic slowdown and dislocation in the global credit markets;
 
  •   our issuance of additional shares of common stock or other securities;
 
  •   the performance of other similar companies;
 
  •   changes in accounting principles;
 
  •   passage of legislation or other regulatory developments that adversely affect us or our industry; and
 
  •   the potential impact of the recent economic slowdown on the student housing industry and related budgets of colleges and universities.
 
Market interest rates may adversely affect the market price of our common stock.
 
One of the factors that investors may consider in deciding whether to buy or sell our common stock will be the dividend yield on our common stock as a percentage of our stock price, relative to market interest rates. An increase in market interest rates may lead prospective purchasers of our common stock to expect a higher dividend yield in order to maintain their investment, and higher interest rates would likely increase our borrowing costs which would reduce our cash flow, cash available to service our indebtedness or invest in our business and adversely affect our ability to make distributions to our stockholders. As a result, higher market interest rates could adversely affect the market price of our common stock.
 
Future offerings of debt or equity securities ranking senior to our common stock may limit our operating and financial flexibility and may adversely affect the market price of our common stock.
 
If we decide to issue debt or equity securities in the future ranking senior to our common stock or otherwise incur indebtedness, it is possible that these securities or indebtedness will be governed by an indenture or other instrument containing covenants restricting our operating flexibility and limiting our ability to make distributions to our stockholders. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges, including with respect to distributions, more favorable than those of our common stock and may result in dilution to owners of our common stock. Because our decision to issue debt or equity securities in any future offering or otherwise incur indebtedness will depend on then current market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or financings, any of which could adversely affect the market price, and dilute the value of, our common stock.
 
We have not obtained appraisals of our properties in connection with this offering. As a result, the price we pay to our existing investors for their interests in our predecessor entities, including the interests we intend to purchase from MXT Capital, which was not negotiated in an arm’s length transaction, may exceed our properties’ market value.
 
We have not obtained appraisals of our properties in connection with this offering. The consideration we have agreed to pay to our existing investors for their interests in our predecessor


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entities, including MXT Capital, which was not negotiated in an arm’s length transaction, was determined by our executive officers based upon a capitalization rate analysis, an internal rate of return analysis, an assessment of the fair market value of the properties and the consideration of other factors, such as per bed value and the liquidation preference with respect to certain interests. As a result, this consideration may exceed our properties’ individual market values.
 
The initial public offering price of our common stock was determined in consultation with the representative of the underwriters and does not necessarily bear any relationship to the book value or the market value of our properties. Factors considered in determining the initial public offering price included the valuation multiples of publicly traded companies that the representative of the underwriters believes to be comparable to us, our financial information, the history of, and the prospects for, our company and the industry in which we compete, an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues, the present state of our development, and the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. As a result, our value, as represented by the initial public offering price of our common stock, may exceed the market value of our individual properties.
 
Purchasers of our common stock in this offering will experience immediate and substantial dilution.
 
The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. As of March 31, 2010, the aggregate historical combined net tangible book value of the interests and assets to be transferred to our operating partnership was approximately $      million, or $      per share of our common stock on a fully-diluted basis. The pro forma net tangible book value per share of our common stock after the consummation of this offering and our formation transactions will be less than the initial public offering price. You will therefore experience immediate dilution of $      per share immediately after this offering.
 
Federal Income Tax Risk Factors
 
Our failure to qualify or remain qualified as a REIT could have a material and adverse effect on us and the market price of our common stock.
 
We intend to operate in a manner that will allow us to qualify as a REIT for U.S. federal income tax purposes under the Internal Revenue Code. We have not requested and do not plan to request a ruling from the Internal Revenue Service, or IRS, that we qualify as a REIT, and the statements in this prospectus are not binding on the IRS or any court. If we fail to qualify or lose our qualification as a REIT, we will face serious tax consequences that would substantially reduce the funds available for distribution to our stockholders for each of the years involved because:
 
  •   we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to U.S. federal income tax at regular corporate rates;
 
  •   we also could be subject to the U.S. federal alternative minimum tax and possibly increased state and local taxes; and
 
  •   unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following a year during which we were disqualified.


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In addition, if we lose our qualification as a REIT, we will not be required to make distributions to stockholders, and all distributions to our stockholders will be subject to tax as regular corporate dividends to the extent of our current and accumulated earnings and profits. This means that our U.S. individual stockholders would be taxed on our dividends at a maximum U.S. federal income tax rate currently at 15%, and our corporate stockholders generally would be entitled to the dividends received deduction with respect to such dividends, subject, in each case, to applicable limitations under the Internal Revenue Code.
 
Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions and regulations promulgated thereunder for which there are only limited judicial and administrative interpretations. Even a technical or inadvertent violation could jeopardize our ability to qualify as a REIT. The complexity of these provisions and of the applicable U.S. Treasury Department regulations, or “Treasury Regulations,” that have been promulgated under the Internal Revenue Code is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements on a continuing basis, including requirements regarding the composition of our assets, sources of our gross income and stockholder ownership. Also, we must make distributions to stockholders aggregating annually at least 90% of our net taxable income, excluding net capital gains.
 
As a result of these factors, our failure to qualify as a REIT could materially and adversely affect us and the market price of our common stock.
 
To qualify and remain qualified as a REIT, we will likely rely on the availability of equity and debt capital to fund our business.
 
To qualify and remain qualified as a REIT, we generally must distribute to our stockholders at least 90% of our net taxable income each year, excluding net capital gains, and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our net taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Because of REIT distribution requirements, we may be unable to fund capital expenditures, such as our developments, future acquisitions or property upgrades or renovations from operating cash flow. Therefore, we may be dependent on the public equity and debt capital markets and private lenders to fund our growth and other capital expenditures. However, we may not be able to obtain this capital on favorable terms or at all. Our access to third-party sources of capital depends, in part, on:
 
  •   general market conditions;
 
  •   our current debt levels and the number of properties subject to encumbrances;
 
  •   our current performance and the market’s perception of our growth potential;
 
  •   our cash flow and cash dividends; and
 
  •   the market price of our common stock.
 
If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations or make the cash distributions to our stockholders, including those necessary to qualify or maintain our qualification as a REIT, which could materially and adversely affect us.


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Even if we qualify as a REIT, we may face other tax liabilities that have a material and adverse affect on our financial performance and liquidity.
 
Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. Any of these taxes would cause our operating costs to increase, and therefore our financial performance and liquidity could be materially and adversely affected.
 
In particular, various services provided at our properties are not permitted to be provided directly by our Operating Partnership, but must be provided through “taxable REIT subsidiaries” that are treated as fully taxable corporations. Although we do not anticipate this to be the case, it is possible that the income that is derived by, and subject to corporate income tax in the hands of, such taxable REIT subsidiaries may be significant.
 
To qualify or remain qualified as a REIT, we may be forced to limit the activities of our taxable REIT subsidiaries, which could materially and adversely affect us.
 
To qualify or remain qualified as a REIT, no more than 25% of the value of our total assets may consist of the securities of one or more taxable REIT subsidiaries, or “TRS.” Certain of our activities, such as our third-party development, construction, management and leasing services, must be conducted through our TRSs for us to qualify or remain qualified as a REIT. In addition, certain non-customary services must be provided by a TRS or an independent contractor. If the revenues from such activities create a risk that the value of our TRSs, based on revenues or otherwise, approaches the 25% threshold, we will be forced to curtail such activities or take other steps to remain under the 25% threshold. Since the 25% threshold is based on value, it is possible that the IRS could successfully contend that the value of our TRSs exceeds the 25% threshold even if our TRSs account for less than 25% of our consolidated revenues, income or cash flow. After our formation transactions, our third-party services will be performed by our TRSs. Consequently, income earned from our third-party services and non-customary services will be subject to regular federal income taxation and state and local income taxation where applicable, thus reducing the amount of cash available for distribution to our stockholders.
 
A TRS is not permitted to directly or indirectly operate or manage a “hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis.” We have been advised by counsel that the proposed method of operating our TRSs will not be considered to constitute such an activity. Future Treasury Regulations or other guidance interpreting the applicable provisions might adopt a different approach, or the IRS might disagree with the conclusion of our counsel. In such event we might be forced to change our method of operating our TRSs, or one or more of the TRSs could fail to qualify as a TRS, which could cause us to fail to qualify as a REIT. Any of the foregoing circumstances could materially and adversely affect us.
 
If our operating partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and we could be materially and adversely affected.
 
We believe that our operating partnership will qualify to be treated as a partnership for federal income tax purposes. As a partnership, our operating partnership will not be subject to federal income tax on its income. Instead, each of its partners, including us, will be required to pay tax on its allocable share of our operating partnership’s income. No assurance can be provided, however, that the IRS, will not challenge its status as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership as a corporation for tax purposes, we would fail to meet the gross income tests and


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certain of the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of the our operating partnership to qualify as a partnership would cause it to become subject to federal state and corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.
 
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends, which could materially and adversely affect the market price of our common stock.
 
The maximum tax rate applicable to income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates has been reduced by legislation to 15% (through the end of 2010). Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the market price of the stock of REITs, including shares of our common stock.
 
We may in the future choose to pay dividends in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive.
 
We may in the future distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder. Under Revenue Procedure 2010-12 (which extends guidance previously issued by the IRS in Revenue Procedure 2009-15), up to 90% of any such taxable dividend through 2011 could be payable in our stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.
 
Further, while Revenue Procedure 2010-12 applies only to taxable dividends payable in cash or stock through 2011, it is unclear whether and to what extent we will be able to pay taxable dividends in cash and stock in later years. Moreover, various aspects of such a taxable cash/stock dividend are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable cash/stock dividends, including on a retroactive basis, or assert that the requirements for such taxable cash/stock dividends have not been met.
 
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities, which could materially and adversely affect our financial performance and liquidity.
 
The REIT provisions of the Internal Revenue Code substantially limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets generally does not constitute “gross income” for purposes of the 75% gross income test or the


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95% gross income test, if certain requirements are met. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result, we might have to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because a domestic TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except for being carried forward against future taxable income in the respective TRS. These increased costs could materially and adversely affect our financial performance and liquidity.
 
Complying with REIT requirements may cause us to forgo otherwise attractive investment opportunities, which could materially and adversely affect us.
 
To qualify as a REIT for U.S. federal income tax purposes, we continually must satisfy tests concerning, among other things, the sources of our income, the type and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income, asset-diversification or distribution requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments, which could materially and adversely affect us.
 
The ability of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.
 
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interests to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.
 
New legislation, regulation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT.
 
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, regulation, administrative or judicial action at any time, which could affect the U.S. federal income tax treatment of an investment in our common stock. The U.S. federal income tax rules that affect REITs are under constant review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. Revisions in U.S. federal tax laws and interpretations thereof could cause us to change our investments and commitments, which could also affect the tax considerations of an investment in our common stock.


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in, or implied by, the forward-looking statements. Factors that could materially and adversely affect our business, financial condition, cash flows, liquidity, results of operations, FFO and prospects include, but are not limited to:
 
  •   the factors discussed in this prospectus, including those set forth under the section titled “Risk Factors;”
 
  •   the performance of the student housing industry in general;
 
  •   decreased occupancy or rental rates at our properties resulting from competition or otherwise;
 
  •   the operating performance of our properties;
 
  •   the success of our development activities;
 
  •   changes on the admissions or housing policies of the colleges and universities from which we draw student-tenants;
 
  •   the availability of and our ability to attract and retain qualified personnel;
 
  •   changes in our business and growth strategies;
 
  •   our capitalization and leverage level;
 
  •   our capital expenditures;
 
  •   the degree and nature of our competition, in terms of developing properties, consummating acquisitions and in obtaining student-tenants to fill our properties;
 
  •   volatility in the real estate industry, interest rates and spreads, the debt or equity markets, the economy generally or the local markets in which our properties are located, whether the result of market events or otherwise;
 
  •   events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large financial institutions or other significant corporations, terrorist attacks, natural or man-made disasters or threatened or actual armed conflicts;
 
  •   the availability and terms of short-term and long-term financing, including financing for development activities;


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  •   the availability of attractive development and/or acquisition opportunities in properties that satisfy our investment criteria, including our ability to identify and consummate successful property developments and property acquisitions;
 
  •   the credit quality of our student-tenants and parental guarantors;
 
  •   changes in personnel, including the departure of key members of our senior management, and lack of availability of qualified personnel;
 
  •   unanticipated increases in financing and other costs, including a rise in interest rates;
 
  •   estimates relating to our ability to make distributions to our stockholders in the future and our expectations as to the form of any such distributions;
 
  •   environmental costs, uncertainties and risks, especially those related to natural disasters;
 
  •   the limitations imposed by the tax protection agreement on our ability to sell or dispose of our properties during the tax protection period;
 
  •   changes in governmental regulations, accounting treatment, tax rates and similar matters;
 
  •   legislative and regulatory changes (including changes to laws governing the taxation of REITs); and
 
  •   limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes and the ability of certain of our subsidiaries to qualify as TRSs for U.S. federal income tax purposes, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules.
 
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this prospectus. The matters summarized under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business and Properties” and elsewhere in this prospectus could cause our actual results and performance to differ materially from those set forth in, or implied by, our forward-looking statements. Accordingly, we cannot guarantee future results or performance. Furthermore, except as required by law, we are under no duty to, and we do not intend to, update any of our forward-looking statements after the date of this prospectus, whether as a result of new information, future events or otherwise.


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USE OF PROCEEDS
 
Assuming an initial public offering price of $      per share of common stock based upon the mid-point of the price range set forth on the cover page of this prospectus, we estimate we will receive gross proceeds from this offering of $      and approximately $      if the underwriters’ overallotment option is exercised in full. After deducting the underwriting discount, structuring fee and other estimated expenses of this offering payable by us, we expect net proceeds from this offering of approximately $      and approximately $      if the underwriters’ overallotment option is exercised in full.
 
We will contribute the net proceeds from this offering to our operating partnership. Assuming no exercise of the underwriters’ overallotment option, we intend to use the net proceeds from this offering as follows:
 
  •   approximately $215.6 million to reduce outstanding mortgage and construction loan indebtedness and pay associated costs, as follows:
 
  •   $32.5 million outstanding under our mortgage loan with Silverton Bank as it relates to two of our properties (this loan, or the Silverton Bank Mortgage Loan, is secured by six of our properties, has an aggregate outstanding principal amount of approximately $104.0 million, as of March 31, 2010, an interest rate of 6.4% per annum and a maturity date of February 28, 2013);
 
  •   $15.8 million outstanding under our construction loan with Wachovia Bank relating to The Grove at Mobile-Phase II (this loan, or The Grove at Mobile-Phase II Construction Loan, is secured by The Grove at Mobile-Phase II, has an aggregate outstanding principal amount of approximately $15.8 million, as of March 31, 2010, an interest rate of LIBOR plus 300 basis points (with a 5.5% interest rate floor) and a maturity date of October 31, 2010);
 
  •   $148.9 million outstanding under our construction loan with Wachovia Bank as it relates to nine of our properties (this loan, or the Wachovia Bank Nine Property Construction Loan, is secured by nine of our properties, has an aggregate outstanding principal amount of approximately $148.9 million, as of March 31, 2010, an interest rate of LIBOR plus 280 basis points (with a 6.00% interest rate floor through October 31, 2010 with respect to approximately $136.4 million) and a maturity date of January 31, 2011);
 
  •   $14.7 million outstanding under our construction loan with Wachovia Bank as it relates to The Grove at San Marcos (this loan, or the Wachovia Bank Three Property Construction Loan, is secured by three of our properties, has an aggregate outstanding principal amount of approximately $14.8 million, as of March 31, 2010, an interest rate of LIBOR plus 250 basis points (with a 5.94% interest rate floor) and a maturity date of May 15, 2011); and
 
  •   $3.7 million to pay costs associated with the termination of interest rate swaps and hedges relating to the repayment of this debt (based on the settlement value as of March 31, 2010);
 
  •   approximately $4.0 million to repay indebtedness owed to Capital Bank, which has an interest rate of prime plus 1.0% and a maturity date of August 5, 2010;
 
  •   approximately $6.0 million to repay unsecured indebtedness owed by us to RHR, LLC, an entity owned by MXT Capital and the Ricker Group, which has an interest rate of 12%


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  and a maturity date of April 30, 2011; RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us;
 
  •   approximately $4.5 million will be paid to MXT Capital, which will immediately use such amounts to make capital contributions to certain entities that will, in turn, immediately use the capital contributions solely to repay indebtedness;
 
  •   approximately $28.6 million to acquire interests in our properties from HSRE and satisfy associated obligations to HSRE;
 
  •   approximately $26.7 million to acquire interests in our properties from the Ricker Group;
 
  •   approximately $10.7 million to acquire interests in our properties from certain third-party investors; 
 
  •   approximately $4.2 million to acquire land on which we expect to commence building five properties following the completion of this offering; and
 
  •   approximately $      million for working capital and general corporate purposes.
 
If the underwriters’ overallotment option is exercised, we expect to use the additional net proceeds (which, if the underwriters’ overallotment is exercised in full, will be approximately $      (based upon the mid-point of the price range set forth on the cover page of this prospectus)) for working capital and general corporate purposes.
 
Pending application of any portion of the net proceeds from this offering, we will invest it in interest-bearing accounts and short-term, interest-bearing securities as is consistent with our intention to qualify for taxation as a REIT for federal income tax purposes. Such investments may include, for example, obligations of the U.S. federal government and governmental agency securities, certificates of deposit and interest-bearing bank deposits.


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The following table provides information related to the expected sources and uses of the proceeds from this offering, assuming the underwriters’ overallotment option is not exercised.
 
                     
Sources
   
Uses
 
(in millions)     (in millions)  
 
Gross offering proceeds (1)
  $               
Underwriting discount
  $             
           
Structuring fee
       
           
Other fees and expenses
       
           
Reduction of outstanding
mortgage and
construction loan
indebtedness and
payment of associated costs
    215.6  
           
Repayment of unsecured indebtedness
(Capital Bank and RHR,
LLC)
    10.0  
           
Payment to MXT Capital for repayment of certain indebtedness
    4.5  
           
Payment to HSRE for
interests in our properties
and associated obligations
    28.6  
           
Payment to the Ricker Group
for interests in our
properties
    26.7  
           
Payment to certain third-party
investors for interests in our
  properties
    10.7  
           
Acquisition of land
    4.2  
           
Working capital (2)
       
                     
Total Sources
  $      
Total Uses
  $    
                     
 
 
(1) This amount assumes           shares of common stock are sold in this offering and will increase or decrease depending upon whether such shares are sold above or below $      per share (the mid-point of the price range set forth on the cover page of this prospectus).
 
(2) Working capital needs will be met by utilizing net proceeds from this offering and funds available under our revolving credit facility, which we expect to obtain upon completion of this offering.


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OUR DISTRIBUTION POLICY
 
We intend to pay regular quarterly distributions to our common stockholders. We intend to pay a pro rata initial distribution with respect to the period commencing on the completion of this offering and ending September 30, 2010, based on $           per share for a full quarter. On an annualized basis, this would be $           per share, or an initial annual distribution rate of approximately          % based on an assumed initial public offering price of $           per share (the mid-point of the price range set forth on the cover page of this prospectus). This estimated initial annual distribution is expected to exceed our per-share estimated cash available for distribution to our common stockholders for the 12-month period ending March 31, 2011. Our ability to fund this distribution will depend, in part, upon the receipt of cash flow from three uncombined properties that are currently under construction and scheduled to open in August 2010 for the 2010-2011 academic year, from continued successful leasing of our existing portfolio, and from fee income from development and construction services, the timing and amount of which is inherently uncertain.
 
Our estimate of cash available for distribution does not reflect:
 
  •   cash flow from beds at our three properties that are under construction and scheduled to commence operations for the 2010-2011 academic year for which we do not have executed leases (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Expected to Affect our Operating Results—Properties under Construction”);
 
  •   fee income from development and construction services that we may provide to future uncombined joint venture properties (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Expected to Affect our Operating Results—Development and Construction Services”);
 
  •   cash to be used for capital expenditures, such as property acquisitions and development activities, other than an estimate of recurring capital expenditures at our combined properties and our uncombined joint venture properties; or
 
  •   cash estimated to be used for financing activities, other than scheduled amortization payments on mortgage indebtedness that will be outstanding upon consummation of this offering.
 
During the 12 months ending March 31, 2011, we expect to incur capital expenditures in connection with the development and construction of five student housing properties, with completion and occupancy targeted for the 2011-12 academic year, which we intend to finance primarily with additional indebtedness, which may include borrowings under our revolving credit facility or new construction indebtedness. Although we currently have no additional commitments with respect to investing or financing activities, we may choose to undertake additional investing and/or financing activities in the future, which may have a material effect on our estimate of cash available for distribution. Because we have made the assumptions set forth above in estimating cash available for distribution, we do not intend this estimate to be a projection or forecast of our actual results of operations or our liquidity, and have estimated cash available for distribution for the sole purpose of determining our initial annual distribution amount and corresponding payout ratio. Our estimate of cash available for distribution should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP) or as an indicator of our liquidity or our ability to pay dividends or make distributions. In addition, the methodology upon which we made the adjustments described below is not necessarily intended to be a basis for determining future distributions.


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We intend to maintain our initial distribution rate for the 12-month period following completion of this offering unless actual results of operations, economic conditions or other factors differ materially from the assumptions used in our estimate. Distributions made by us will be authorized and determined by our board of directors out of funds legally available therefor and will be dependent upon a number of factors, including restrictions under applicable law or contained in our indebtedness or any future preferred stock. We believe that our estimate of cash available for distribution constitutes a reasonable basis for setting the initial distribution; however, no assurance can be given that the estimate will prove accurate, and actual distributions may therefore be significantly different from the expected distributions. We do not intend to reduce the expected distribution per share if the underwriters’ overallotment option is exercised; however, this could require us to pay distributions from net offering proceeds.
 
We anticipate that, at least initially, our distributions will exceed our then current and then accumulated earnings and profits as determined for U.S. federal income tax purposes due to non-cash expenses, primarily depreciation and amortization charges that we expect to incur. Therefore, a portion of these distributions will represent a return of capital for federal income tax purposes. Distributions in excess of our current and accumulated earnings and profits and not treated by us as a dividend will not be taxable to a taxable U.S. stockholder under current federal income tax law to the extent those distributions do not exceed the stockholder’s adjusted tax basis in such common stock, but rather will reduce the adjusted basis of the common stock. Therefore, the gain (or loss) recognized on the sale of that common stock or upon our liquidation will be increased (or decreased) accordingly. To the extent those distributions exceed a taxable U.S. stockholder’s adjusted tax basis in such common stock, they generally will be treated as a capital gain realized from the taxable disposition of those shares. We expect that approximately     % of our estimated initial annual distribution will represent a return of capital for federal income tax purposes. The percentage of our stockholder distributions that exceeds our current and accumulated earnings and profits may vary substantially from year to year. For a more complete discussion of the tax treatment of distributions to holders of our common stock, see “Federal Income Tax Considerations.”
 
We cannot assure you that our estimated distributions will be made at all, or at the rate estimated below, or if made, that such distributions will be sustained. Any distributions we pay in the future will depend upon our actual results of operations, economic conditions and other factors that could differ materially from our current expectations. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our properties (including properties currently under construction) and our development, construction and management services, our operating expenses and interest expense, the ability of our student-tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, see “Risk Factors.”
 
If our properties do not generate sufficient cash flow with which to pay our estimated distributions, we will be required to fund distributions from either working capital or other sources.
 
Federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income determined without regard to the dividends paid deduction and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income, including capital gains. For more information, please see “Federal Income Tax Considerations.” We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs. However, under some circumstances, we may be required to pay distributions in excess of cash available


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for distribution in order to meet these distribution requirements, and we may need to borrow funds to pay some distributions.
 
The following table describes our pro forma income for the 12 months ended March 31, 2010, and the adjustments we have made thereto in order to estimate our initial cash available for distribution for the 12 months ending March 31, 2011 (amounts in thousands except share data, per share data and percentages):
 
             
Pro forma net loss before noncontrolling interest for the year ended December 31, 2009
  $        
Less:
  Pro forma net loss before noncontrolling interest for the three months ended March 31, 2010            
Add:
  Pro forma net loss before noncontrolling interest for the three months ended March 31, 2009            
Pro forma net loss for the 12 months ended March 31, 2010
           
Add:
  Depreciation and amortization for the 12 months ended March 31, 2010           (1)
Less:
  Net decrease in net income before depreciation from development and construction services for existing contracts for the 12 months ending March 31, 2011 compared to during the 12 months ended March 31, 2010           (2)
Add:
  Net increase in management services revenue from existing contracts for the 12 months ending March 31, 2011 compared to during the 12 months ended March 31, 2010           (3)
Add:
  Increase in net income before depreciation from the anticipated increase in economic occupancy during the 12 months ending March 31, 2011 compared to the 12 months ended March 31, 2010           (4)
Add:
  Increase in net income before depreciation from the anticipated increase in average rental rate during the 12 months ending March 31, 2011 compared to the 12 months ended March 31, 2010           (5)
Add:
  Increase in net income before depreciation from a full year’s operation of two combined properties that opened in 2009           (6)
Add:
  Increase in net income before depreciation from a full year’s operation of three uncombined joint venture properties that opened in 2009           (7)
Add:
  Increase in net income before depreciation from initial operations of three uncombined joint venture properties currently under construction and scheduled to open in August 2010 for the 2010-11 academic year           (8)
             
Estimated cash flows from operating activities for the 12 months ending March 31, 2011
           
Estimated cash flows used in investing activities:
       
Less:
  Annual provision for recurring capital expenditures — combined properties           (9)
Less:
  Pro rata share of annual provision for recurring capital expenditures — uncombined joint venture properties           (10)
             
Total estimated cash flow used in investing activities
           
Estimated cash flows used in financing activities:
       
Less:
  Scheduled loan principal repayments — combined properties           (11)
Less:
  Pro rata share of scheduled loan principal repayments — uncombined joint venture properties           (12)
             
Total estimated cash flows used in financing activities
           
Total estimated annual cash available for distribution for the 12 months ending March 31, 2011
          (13)
         


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Total Estimated Initial Annual Distribution to Stockholders and Holders of OP Units
  $       (14)
Estimated annual distribution per share/OP unit
  $        
Payout ratio based on estimated cash available for distribution
          % (15)
Estimated Cash Available for Distribution to:
       
OP Units
  $        
Shares of Common Stock
  $        
 
 
(1) Includes $        of depreciation and amortization from our combined properties and $        of our pro rata share of depreciation and amortization from our uncombined joint venture properties.
 
(2) Adjustment reflects the net decline in contractual development and construction services net income before depreciation to be recognized in the 12 months ending March 31, 2011 compared to that which was recognized in the 12 months ended March 31, 2010. Revenue and expenses from development and construction services for the 12 months ending March 31, 2011 relate primarily to the completion of the three joint venture properties that are currently under construction and scheduled to commence operations for the 2010-11 academic year.
 
(3) Adjustment reflects the net increase in contractual management fee revenues for the 12 months ending March 31, 2011 compared to the same period ended March 31, 2010 from contracts in place during the 12 months ended March 31, 2010. The increase in revenue from management services for the 12 months ending March 31, 2011 relates primarily to the impact of a full year of management services revenue for the three joint venture properties that opened in 2009 and the initiation of management services for the three joint venture properties that are currently under construction and scheduled to commence operations for the 2010-11 academic year.
 
(4) The following table reflects the economic impact on the 12 months ending March 31, 2011 resulting from anticipated changes in our economic occupancy based on our executed lease status for our operating properties as of          , 2010, as compared to the 12 months ended March 31, 2010 as follows:
 
                                                                             
                                            Impact on Net
             
              Economic
                      Pro Forma
    Income before
             
              Occupancy for
    Economic
    Pre- leasing for
    Pre- leasing for
    Occupancy for
    Depreciation
             
        Total Beds
    12 mos. Ended
    Occupancy
    the 2009- 10 AY
    the 2010- 11 AY
    12 mos. Ending
    for the 12 mos.
             
        at Property     3/31/10(a)     as of            as of       (b)     as of       (c)     3/31/11(d)     Ending 3/31/11(e)              
 
Wholly-Owned Properties
                                                                       
1
  Asheville, NC     448                                                                  
2
  Carrollton, GA     492                                                                  
3
  Las Cruces, NM     492                                                                  
4
  Milledgeville, GA     492                                                                  
5
  Abilene, TX     504                                                                  
6
  Ellensburg, WA     504                                                                  
7
  Greeley, CO     504                                                                  
8
  Jacksonville, AL     504                                                                  
9
  Mobile, AL Phase I     504                                                                  
10
  Mobile, AL Phase II     504                                                                  
11
  Nacogdoches, TX     522                                                                  
12
  Cheney, WA     512                                                                  
13
  Jonesboro, AR     504                                                                  
14
  Lubbock, TX     504                                                                  
15
  Stephenville, TX     504                                                                  
16
  Troy, AL     514                                                                  
17
  Waco, TX     504                                                                  
18
  Wichita, KS     504                                                                  
19
  Wichita Falls, TX     504                                                                  
20
  Murfreesboro, TN     504                                                                  
21
  San Marcos, TX     504                                                                  
                                                                             
Sub Total
    10,528                                                                  
Joint Venture Properties
                                                                       
22
  Lawrence, KS     500                                                                  
23
  Moscow, ID     504                                                                  
24
  San Angelo, TX     504                                                                  
Sub Total
    1,508                                                                  
                                                                         
Total
    12,036                                                                  
 
(a) Economic occupancy for the historical 12 months ended March 31, 2010 reflects the average occupancy during that period, which generally includes four months of occupancy results from the 2008-09 academic year (i.e., April 2009 through July 2009) and eight months of occupancy results from the 2009-10 academic year (i.e., August 2009 through March 2010).
 
(b) Pre-leasing for the 2009-10 academic year as of          , 2009 is based on the number of executed leases in hand for the 2009-10 academic year as of          , 2009.
 
(c) Pre-leasing for the 2010-11 academic year as of          , 2010 is based on the number of executed leases in hand for the 2010-11 academic year as of          , 2010.

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(d) Economic occupancy for the 12 months ending March 31, 2011 is based on four months (i.e., April 2010 through July 2010) of current economic occupancy (as of     , 2010) and eight months (i.e., August 2010 through March 2011) of economic occupancy as follows:
 
(i) If current pre-leasing for the 2010-11 academic year (as of          ,2010) is greater than current economic occupancy (as of     , 2010), then economic occupancy for the eight months ending March 31, 2011 is based on current pre-leasing for the 2010-11 academic year; or
 
(ii) If current pre-leasing for the 2010-11 academic year (as of          , 2010) is less than current economic occupancy (as of     , 2010) but is greater than or equal to pre-leasing for the 2009-10 academic year (as of          , 2009), then economic occupancy for the eight months ending March 31, 2011 is based on current economic occupancy as of          , 2010; or
 
(iii) If current pre-leasing for the 2010-11 academic year (as of          , 2010) is less than current economic occupancy (as of     , 2010) and is less than pre-leasing for the 2009-10 academic year (as of          , 2009), then economic occupancy for the eight months ending March 31, 2011 is based on current economic occupancy as of          , 2010 less the difference between pre-leasing for the 2009-10 academic year (as of          , 2009) and pre-leasing for the 2010-11 academic year (as of          , 2010).
 
(e) Impact on net income before depreciation for the 12 months ending March 31, 2011 based on increase in occupancy assuming average monthly revenue per occupied bed for the 12 months ending March 31, 2011 is equal to average monthly revenue per occupied bed for the 12 months ended March 31, 2010.
 
(5) The following table reflects the economic impact on the 12 months ending March 31, 2011 resulting from anticipated changes in our average revenue per leased bed based on our executed lease status for our operating properties as of     , 2010, as compared to the 12 months ended March 31, 2010 as follows:
 
                                                     
        Average
    Average
          Average
    Average
    Impact on Net
 
        Monthly Revenue
    Monthly Revenue
    Total Beds
    Monthly Revenue
    Monthly Revenue
    Income before
 
        per Occupied Bed
    per Occupied Bed
    Leased for
    per Leased Bed
    per Leased Bed
    Depreciation
 
        for the 12 mos.
    For the Month
    the 2010- 11 AY
    for the 2010- 11
    for the 12 mos.
    for the 12 mos.
 
        Ended 3/31/10(a)     Ended            as of       (b)     Academic Year(b)     Ending 3/31/11(c)     Ending 3/31/11(d)  
 
                                                 
Wholly-Owned Properties
                                               
                                                     
1
  Asheville, NC                                                                        
                                                     
2
  Carrollton, GA                                                
                                                     
3
  Las Cruces, NM                                                
                                                     
4
  Milledgeville, GA                                                
                                                     
5
  Abilene, TX                                                
                                                     
6
  Ellensburg, WA                                                
                                                     
7
  Greeley, CO                                                
                                                     
8
  Jacksonville, AL                                                
                                                     
9
  Mobile, AL Phase I                                                
                                                     
10
  Mobile, AL Phase II                                                
                                                     
11
  Nacogdoches, TX                                                
                                                     
12
  Cheney, WA                                                
                                                     
13
  Jonesboro, AR                                                
                                                     
14
  Lubbock, TX                                                
                                                     
15
  Stephenville, TX                                                
                                                     
16
  Troy, AL                                                
                                                     
17
  Waco, TX                                                
                                                     
18
  Wichita, KS                                                
                                                     
19
  Wichita Falls, TX                                                
                                                     
20
  Murfreesboro, TN                                                
                                                     
21
  San Marcos, TX                                                
                                                     
                                                 
Sub Total
                                               
                                                 
Joint Venture Properties
                                               
                                                     
22
  Lawrence, KS                                                
                                                     
23
  Moscow, ID                                                
                                                     
24
  San Angelo, TX                                                
                                                     
                                                 
Sub Total
                                               
                                                 
                                                 
Total
                                               
                                                 
 
(a) Average monthly revenue per occupied bed for the historical 12 months ended March 31, 2010 generally includes four months of results from the 2008-09 academic year (i.e., April 2009 through July 2009) and eight months of results from the 2009-10 academic year (i.e., August 2009 through March 2010).
 
(b) Total beds leased and average monthly revenue per leased bed for the 2010-11 academic year is based on executed leases in hand for the 2010-11 academic year as of          , 2010.
 
(c) Estimated average monthly revenue per leased bed for the 12 months ending March 31, 2011 is based on four months (i.e., April 2010 through July 2010) of current average monthly revenue per occupied bed (as of the month ended          , 2010) and eight months (i.e., August 2010 through March 2011) of estimated average monthly revenue per leased bed based on executed leases in hand as of          , 2010.
 
(d) Impact on net income before depreciation is based on the difference between the estimated average monthly revenue per leased bed for the 12 months ending March 31, 2011 and the historical average monthly revenue per occupied bed for the 12 months ended March 31, 2010, multiplied by the number of executed leases in hand as of          , 2010, multiplied by 12 months.


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(6) The following table reflects the economic impact on the 12 months ending March 31, 2011 resulting from a full year’s operation of two combined properties that opened in 2009 (The Grover at Murfreesboro and The Grove at San Marcos).
 
                                                                             
                          Annualized
          Annualized
    Impact on Net
             
              Annualized
    Operating
    Operating
    Interest
    Interest
    Income before
             
        Revenue
    Revenue
    Expenses
    Expenses
    Expense
    Expense
    Depreciation
             
        for the 8 mos.
    for the 12 mos.
    for the 8 mos.
    for the 12 mos.
    for the 8 mos.
    for the 12 mos.
    for the 12 mos.
             
        Ended 3/31/10     Ending 3/31/11(a)     Ended 3/31/10     Ending 3/31/11(a)     Ended 3/31/10     Ending 3/31/11(a)     Ending 3/31/11(b)              
 
Wholly-Owned Properties
                                                                       
1
  Murfreesboro, TN                                                                        
2
  San Marcos, TX                                                                                                                  
                                                                             
Total
                                                                       
 
(a) Based on average monthly revenue, operating expenses or interest expense for the eight months ended March 31, 2010 multiplied by 12.
 
(b) Represents the amount by which net income before depreciation (i.e., revenue less operating expenses less interest expense) for the 12 months ending March 31, 2011 exceeds net income before depreciation for the eight months ended March 31, 2010.
 
(7) The following table reflects the economic impact on the 12 months ending March 31, 2011 resulting from a full year’s operation of three joint venture properties that opened in 2009 (The Grove at Lawrence, The Grove at Moscow and The Grove at San Angelo).
 
                                                                             
                          Annualized
          Annualized
    Impact on Net
             
              Annualized
    Operating
    Operating
    Interest
    Interest
    Income before
             
        Revenue
    Revenue
    Expenses
    Expenses
    Expense
    Expense
    Depreciation
             
        for the 8 mos.
    for the 12 mos.
    for the 8 mos.
    for the 12 mos.
    for the 8 mos.
    for the 12 mos.
    for the 12 mos.
             
        Ended 3/31/10     Ending 3/31/11(a)     Ended 3/31/10     Ending 3/31/11(a)     Ended 3/31/11     Ending 3/31/11(a)     Ending 3/31/11(b)              
 
Joint Venture Properties
                                                                       
1
  Lawrence, KS(c)                                                                        
2
  Moscow, ID                                                                        
3
  San Angelo, TX                                                                                                                  
                                                                             
Total
                                                                       
 
(a) Based on average monthly revenue, operating expenses or interest expense for the eight months ended March 31, 2010 multiplied by 12.
 
(b) Represents the amount by which net income before depreciation (i.e., revenue less operating expenses less interest expense) for the 12 months ending March 31, 2011 exceeds net income before depreciation for the eight months ended March 31, 2010, as adjusted to reflect equity method of accounting assuming 49.9% ownership of each property.
 
(c) The Grove at Lawrence opened in 2009 with 300 available beds (out of 500 total planned beds); annualized operating expenses for the 12 months ending March 31, 2011 for this property based on average monthly operating expenses per available bed for the eight months ending March 31, 2010 (assuming 300 available beds) multiplied by 12 months and multiplied by 500 available beds for the 12 months ending March 31, 2011.
 
(8) Represents expected net income before depreciation from leasing activities related to the three uncombined properties currently under construction for the eight-month period from expected opening in August 2010 through March 2011, as follows:
 
                                                                     
                    Average Monthly
                            Impact on Net
 
              Total Beds
    Revenue
    Contribution to
    Average Monthly
    Estimated
    Estimated Interest
    Income before
 
              Leased for
    per Leased Bed
    Revenue for the
    Historical Portfolio
    Expenses for the
    Expense for the
    Depreciation
 
        Total Beds
    the 2010- 11 AY
    for the 2010- 11
    8 mos. Ending
    Operating Expense
    8 mos. Ending
    8 mos. Ending
    for the 12 mos.
 
        at Property     as of       (a)     Academic Year(b)     3/31/11(c)     Per Bed(d)     3/31/11(c)     3/31/11(e)     Ending 3/31/11(f)  
 
                                                         
Properties Under Construction
                                                       
                                                                     
1
  Conway, AR     504                                                          
                                                                     
2
  Huntsville, TX     504                                                          
                                                                     
3
  Statesboro, GA     536                                                                                      
                                                                     
                                                                 
Total
    1,544                                                          
 
(a) Reflects beds leased as evidenced by executed leases as of     , 2010.
 
(b) Average monthly rent for leased beds for the 2010-11 academic year commencing in August 2010.
 
(c) Calculated as Average Monthly Revenue Per Leased Bed or Average Monthly Historical Portfolio Operating Expense Per Bed multiplied by 8 months (August 2010 through March 2011) multiplied by the number of signed leases.
 
(d) Represents the average monthly operating cost per bed at our operating properties for the 12 months ended March 31, 2010.
 
(e) Represents estimated interest expense on unconsolidated joint venture debt for the year ending March 31, 2011.
 
(f) Impact on net income before depreciation for the 12 months ending March 31, 2011 based on equity method of accounting assuming 49.9% ownership of each property.
 
(9) Represents estimated recurring capital expenditures for our combined properties for the 12 months ending March 31, 2011 based on estimated recurring capital expenditures of $14 per bed multiplied by 10,528 total beds at our combined properties as of          , 2010. For more information regarding our recurring capital expenditures, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Recurring Capital Expenditures.”
 
(10) Represents our pro rata share of estimated recurring capital expenditures for our joint venture properties for the 12 months ending March 31, 2011 based on estimated recurring capital expenditures of $14 per bed multiplied by 1,508 total beds at our joint venture properties as of          , 2010 (excluding beds at our three joint venture properties that are currently under construction, which we anticipate will not require material recurring capital


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expenditures for the year ending March 31, 2011). For more information regarding our recurring capital expenditures, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Recurring Capital Expenditures.”
 
(11) Represents required mortgage loan payments for combined properties after the repayment of certain indebtedness with the net proceeds from this offering.
 
(12) Represents our pro rata share of required mortgage loan payments for our uncombined joint venture properties.
 
(13) Reflects estimated operating cash flows less cash flows used in financing and investing activities.
 
(14) Estimated initial annual distribution calculated by multiplying the assumed issued shares of     and OP units of      by the assumed initial distribution amount per share of $     .
 
(15) Payout ratio calculated by dividing the estimated initial annual distribution to stockholders and holders of OP units by the estimated annual cash available for distribution.


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CAPITALIZATION
 
The following table sets forth the capitalization of our Predecessor as of March 31, 2010 and our capitalization on a pro forma basis as of March 31, 2010, adjusted to reflect our formation transactions, this offering and the use of the net proceeds from this offering as described in “Use of Proceeds.” You should read this table in conjunction with “Use of Proceeds,” “Selected Historical and Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and pro forma financial statements and the notes to those financial statements appearing elsewhere in this prospectus.
 
                 
    Predecessor
    Pro Forma
 
    as of
    as of
 
    March 31,
    March 31,
 
    2010     2010 (1)(2)  
    (unaudited)     (unaudited)  
    (in thousands)  
 
Mortgage and construction loans
  $ 329,487     $ 132,304  
Lines of credit and other debt
    10,018        
Related party loan (3)
    6,862        
Equity (deficit):
               
Noncontrolling interest
    4,442       (51,678 )
Common Stock, $.01 par value, 90,000,000 shares
authorized,          shares issued and outstanding on a pro forma basis
          223  
Additional paid in capital
          267,950  
Owners’ equity (deficit)
    (51,748 )      
                 
Total owners’ equity (deficit)
    (47,306 )     216,495  
                 
Total capitalization
  $ 299,061     $ 348,799  
                 
 
 
(1) Each $1.00 increase (decrease) in the assumed public offering price of $      per share, the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) each of additional paid in capital, owners’ equity (deficit), total owners’ equity (deficit) and total capitalization by approximately $      , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discount and offering expenses payable by us. The as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing. Does not include (i) any shares of common stock that may be issued pursuant to the underwriters’ overallotment option to purchase up to an additional           shares of common stock or (ii) OP units issued as part of our formation transactions. Includes 249,335 shares of restricted common stock granted to our independent directors, certain of our executive officers and certain members of our management team under our 2010 Incentive Award Plan.
 
(2) Assumes           shares are sold in this offering at $      per share (the mid-point of the price range set forth on the cover of this prospectus).
 
(3) Represents the proceeds from sale of The Grove at Milledgeville to HSRE, sale of 99% of our interest in HSRE I and prepaid management fees. These transactions are accounted for as financing arrangements.


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DILUTION
 
Purchasers of our common stock in this offering will experience an immediate and substantial dilution of net tangible book value of their common stock from the assumed initial public offering price based on the mid-point of the price range set forth on the cover page of this prospectus. At March 31, 2010, we had a tangible net book value of approximately $      million or $      per share of common stock assuming the issuance of the OP units in our formation transactions and the exchange of the OP units into shares of our common stock on a one-for-one basis. After giving effect to the sale of the shares of our common stock offered hereby, the deduction of underwriting discounts, structuring fee and other estimated offering and related expenses, the receipt by us of the net proceeds from this offering and the use of these net proceeds by us as described under “Use of Proceeds” and the consummation of our formation transactions, the pro forma net tangible book value at March 31, 2010 would have been $      million or $      per share of common stock. This amount represents an immediate increase in net tangible book value of $      per share to existing holders of our common stock and an immediate dilution in pro forma net tangible book value of $      per share from the assumed initial public offering price of $      per share, which is the mid-point of the price range set forth on the cover page of this prospectus, to purchasers of common stock in this offering. The following table illustrates this per share dilution(1):
 
                         
Assumed initial public offering price per share based on the mid-point of the price range set forth on the cover page of this prospectus
                  $             
Net tangible book value per share before our formation transactions and this offering (2)
                                
Decrease in pro forma net tangible book value per share attributable to our formation transactions but before this offering (3)
                                     
Increase in pro forma net tangible book value per share attributable to this offering (4)
                       
Net increase in pro forma net tangible book value per share attributable to our formation transactions and this offering
                       
Pro forma net tangible book value per share after our formation transactions and this offering
                       
Dilution in pro forma net tangible book value per share to purchasers of common stock in this offering
                       
 
 
(1) The calculations above assume that the initial public offering price of our common stock is at the mid-point of the price range set forth on the cover page of this prospectus.
 
(2) Net tangible book value per share before our formation transactions and this offering is determined by dividing the net book value of our tangible assets by the number of shares of common stock held by continuing investors.
 
(3) Decrease in net tangible book value per share attributable to our formation transactions, but before this offering, is determined by dividing the difference between the pro forma net tangible book value, excluding net offering proceeds, and our net tangible book value before our formation transactions and this offering by the number of shares of common stock to be issued in this offering.
 
(4) Represents increase in net tangible book value per share attributable to this offering, adjusted to spread the negative net tangible book value existing before this offering among purchasers of common stock in this offering. This amount is calculated after deducting the underwriting discount and estimated expenses of this offering payable by us.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share based on the mid-point of the price range set forth on the cover page of this prospectus would


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increase (decrease) our pro forma net tangible book value attributable to this offering by $      per share, decrease the pro forma net tangible book value per share after our formation transactions and this offering and increases the dilution in pro forma net tangible book value per share to purchasers of common stock in this offering by $      per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same (assuming no exercise of the underwriters’ overallotment option), and after deducting estimated underwriting discount and estimated expenses of this offering payable by us.


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SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
 
You should read the following selected historical and pro forma financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited historical combined financial statements of our Predecessor (as defined below) and notes thereto, and our unaudited pro forma condensed consolidated financial statements and notes thereto. The selected historical and pro forma financial information contained in this section is not intended to replace the audited and unaudited financial statements included elsewhere in this prospectus.
 
Our “Predecessor” shall mean certain entities and their consolidated subsidiaries controlled by Campus Crest Group, LLC, and its consolidated subsidiaries, which carried out the development, construction, ownership and management of the properties that we will own interests in upon completion of this offering, including its interests in two joint ventures with HSRE.
 
The selected historical combined statements of operations and cash flows for the three months ended March 31, 2010 and 2009 and the selected historical combined balance sheet information as of March 31, 2010 have been derived from the unaudited historical combined financial statements of our Predecessor, included elsewhere in this prospectus. The unaudited historical combined financial statements have been prepared on the same basis as our audited historical combined financial statements and in the opinion of our management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of this information. The results for any interim period are not necessarily indicative of the results that may be expected for a full year. The selected historical combined statements of operations and cash flows for the years ended December 31, 2009, 2008 and 2007 and the selected historical combined balance sheet information as of December 31, 2009 and 2008 have been derived from the audited historical combined financial statements of our Predecessor, included elsewhere in this prospectus. The selected historical combined statements of operations for the years ended December 31, 2006 and 2005 and the selected historical combined balance sheet data for the years ended December 31, 2007, 2006 and 2005 have been derived from the unaudited combined financial statements of our Predecessor, not included in this prospectus. The selected pro forma condensed consolidated statements of operations for the three months ended March 31, 2010 and for the year ended December 31, 2009 and the selected pro forma condensed consolidated balance sheet information as of March 31, 2010 have been derived from our unaudited pro forma condensed consolidated financial statements, included elsewhere in this prospectus.
 
The selected pro forma condensed consolidated statements of operations information is presented as if this offering and our formation transactions had occurred on the first day of the period presented, and the selected pro forma condensed consolidated balance sheet information is presented as if this offering and our formation transactions had occurred on the last day of the period presented. The pro forma unaudited condensed consolidated financial statements and balance sheet information include the effects of our formation transactions, the sale of the common stock offered hereby, the receipt of the estimated net proceeds from this offering, after deducting the underwriting discount and other estimated offering expenses payable by us, and the use of the estimated net proceeds as described under “Use of Proceeds.” The selected historical combined and pro forma condensed consolidated financial information set forth below and the financial statements included elsewhere in this prospectus do not necessarily reflect what our results of operations, financial condition or cash flows would have been if we had operated as a stand-alone company during all periods presented, and, accordingly, such information should not be relied upon as an indicator of our future performance, financial condition or liquidity.


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Statement of Operations Information:
 
                                                                         
    Pro Forma
                   
    Campus Crest
                                           
    Communities, Inc.     Historical Campus Crest Communities Predecessor  
    Three Months
    Year Ended
    Three Months Ended
                               
    Ended
    December 31,
    March 31,     Year Ended December 31,  
    March 31, 2010     2009     2010     2009     2009     2008     2007     2006     2005  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)                       (unaudited)     (unaudited)  
    (in thousands)  
 
Revenues:
                                                                       
Student housing leasing
  $ 12,906     $ 45,021     $ 12,135     $ 10,575     $ 43,708     $ 30,813     $ 15,598     $ 5,335     $ 1,034  
Student housing services
    758       2,289       729       457       2,265       798       110       115       156  
Development, construction and management services
    8,691       24,540       15,693       10,657       60,711       2,505                    
                                                                         
Total revenues
    22,355       71,850       28,557       21,689       106,684       34,116       15,708       5,450       1,190  
                                                                         
Operating expenses:
                                                                       
Student housing operations
    6,845       23,707       6,471       5,494       23,155       14,890       7,470       2,149       528  
Development, construction and management services
    8,142       24,847       14,615       9,969       60,200       2,147                    
General and administrative
    1,797       6,450       1,384       1,123       5,617       5,422       3,467       1,747       459  
Ground leases
    47       264       47       48       264       224       40              
Write-off of pre-development costs
          1,211                   1,211       203                    
Depreciation and amortization
    4,943       18,598       4,762       4,588       18,371       13,573       5,765       1,708       529  
                                                                         
Total operating expenses
    21,774       75,077       27,279       21,222       108,818       36,459       16,742       5,604       1,516  
Equity in loss of uncombined entities
    (564 )     (565 )     (80 )           (59 )                        
                                                                         
Operating income (loss)
    17       (3,792 )     1,198       467       (2,193 )     (2,343 )     (1,034 )     (154 )     (326 )
Nonoperating income (expense):
                                                                       
Interest expense
    (2,154 )     (8,646 )     (4,469 )     (3,679 )     (15,871 )     (14,946 )     (6,583 )     (1,954 )     (223 )
Change in fair value of interest rate derivatives
    111       90       23       612       797       (8,758 )     (2,115 )            
Income taxes
    (395 )     (73 )                                          
Other income (expense)
    33       44       33       (68 )     44       (50 )     100       110        
                                                                         
Total nonoperating expenses
    (2,405 )     (8,585 )     (4,413 )     (3,135 )     (15,030 )     (23,754 )     (8,598 )     (1,844 )     (223 )
                                                                         
Net loss
    (2,388 )     (12,377 )     (3,215 )     (2,668 )     (17,223 )     (26,097 )     (9,632 )     (1,998 )     (549 )
Net loss attributable to noncontrolling interest
    (167 )     (864 )     (2,112 )     (1,639 )     (10,486 )     (870 )     (2,083 )     1,078       (192 )
                                                                         
Net loss attributable to Predecessor
  $ (2,221 )   $ (11,513 )   $ (1,103 )   $ (1,029 )   $ (6,737 )   $ (25,227 )   $ (7,549 )   $ (3,076 )   $ (357 )
                                                                         


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Balance Sheet Information:
 
                                                         
    Pro Forma Campus
             
    Crest Communities,
                                     
    Inc.     Historical Campus Crest Communities Predecessor  
    As of
    As of March 31,     As of December 31,  
    March 31, 2010     2010     2009     2008     2007     2006     2005  
    (unaudited)     (unaudited)                 (unaudited)     (unaudited)     (unaudited)  
    (in thousands)  
 
Student housing properties
  $ 369,432     $ 347,471     $ 347,157     $ 326,217     $ 182,788     $ 48,775     $ 12,691  
Accumulated depreciation
    (43,689 )     (43,689 )     (38,999 )     (20,794 )     (7,752 )     (2,066 )     (506 )
Development in process
    7,493       3,316       3,300       15,742       18,929       25,667       15,827  
                                                         
Investment in real estate, net
    333,236       307,098       311,458       321,165       193,965       72,376       28,012  
Investment in uncombined entity
    15,852       3,327       2,980       776                    
Other assets
    28,737       21,117       17,358       20,214       19,939       5,269       1,721  
                                                         
Total assets
  $ 377,825     $ 331,542     $ 331,796     $ 342,155     $ 213,904     $ 77,645     $ 29,733  
                                                         
                                                         
Mortgage and construction loans
  $ 132,304     $ 329,487     $ 329,102     $ 322,426     $ 166,905     $ 65,560     $ 21,784  
Lines of credit and other debt
          10,018       14,070       9,237       6,579       771       419  
Other liabilities
    29,026       39,343       31,340       32,606       25,533       6,370       4,455  
                                                         
Total liabilities
    161,330       378,848       374,512       364,269       199,017       72,701       26,658  
                                                         
Equity
                                                       
Owners’ equity (deficit)
    268,173       (51,748 )     (50,090 )     (42,502 )     (14,589 )     (4,974 )     (383 )
Noncontrolling interest
    (51,678 )     4,442       7,374       20,388       29,476       9,918       3,458  
                                                         
Total equity
    216,495       (47,306 )     (42,716 )     (22,114 )     14,887       4,944       3,075  
                                                         
Total liabilities and equity
  $ 377,825     $ 331,542     $ 331,796     $ 342,155     $ 213,904     $ 77,645     $ 29,733  
                                                         


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Other Data:
 
                                                                         
    Pro Forma
                                           
    Campus Crest
                                           
    Communities, Inc.     Historical
 
    Three Months
          Campus Crest Communities Predecessor  
    Ended
    Year Ended
    Three Months Ended
                               
    March 31,
    December 31,
    March 31,     Year Ended December 31,  
    2010     2009     2010     2009     2009     2008     2007     2006     2005  
    (unaudited and in thousands)  
 
Funds from operations (“FFO”) (1):
                                                                       
Net loss
  $ (2,388 )   $ (12,377 )   $ (3,215 )   $ (2,668 )