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News and Information Article
Status of Form 10-K Filing and 2005 Estimated Unaudited Operating Results
Update on Restatements for Prior Quarters
J. Patrick OGrady Accepts Offer for Chief Financial Officer Position
Extension of Waiver from Credit Line Syndicate
First Quarter 2006 Results to be Delayed
NEWTOWN SQUARE, Pa., May 15 /-FirstCall/ -- GMH Communities
Trust (NYSE: GCT), one of the leading providers of housing, lifestyle and
community solutions for college students and members of the U.S. military
and their families, today reported estimated unaudited operational results
for 2005. The Company has substantially completed a draft of its Annual
Report on Form 10-K, which is currently being reviewed by Ernst & Young
LLP, the Companys independent registered public accounting firm. The
filing of the Companys Form 10-K will be delayed while management
continues to finalize the 2005 financial statements and additional audit
procedures and reviews are performed by Ernst & Young LLP. In advance of
filing of the Form 10-K, the Company is releasing certain unaudited results
from its draft 2005 financial statements in order to provide its
shareholders with information regarding the Companys operating performance
for 2005. Readers should note that certain review procedures being
performed by the Company, and the audit of the Companys 2005 financial
statements by Ernst & Young LLP, are not complete and, therefore, final
reported results may deviate from the current estimates presented below.
Estimated Unaudited Results for 2005
Revenues and net income for 2005 are estimated to be approximately
$227.6 million and $6.2 million, respectively. Earnings per diluted share
for the year ended December 31, 2005 are estimated at $0.18. Funds from
operations (FFO) per diluted share for the year ended December 31, 2005,
based on unaudited net income, are estimated at $0.69. A reconciliation of
estimated FFO per diluted share to estimated earnings per diluted share,
the most directly comparable GAAP measure, is included in a schedule
accompanying this press release.
Update on Restatements for Prior Quarters
The Company also announced that it has substantially completed its
review of previously reported financial results for prior periods, and will
restate its unaudited financial statements for the quarters ended March 31,
2005, June 30, 2005 and September 30, 2005. As reported in the Companys
press release on March 31, 2006, the restatements are due primarily to
adjustments relating to the expensing of certain student housing
property-related expenditures previously capitalized as well as the timing
of recognition of revenues and expenses previously reported. The
adjustments identified to date do not negatively affect the Companys cash
balances, cash receipts from rental revenues relating to student housing
properties, or cash receipts from fees and other income relating to the
Companys investments in military housing projects. The Company will
include a summary of the adjustments for each of the restated quarterly
periods in its Form 10-K, and plans to file amendments to the Quarterly
Reports on Form 10-Q for each period after filing the Form 10-K.
Offer for Chief Financial Officer Position Accepted by J. Patrick
OGrady
The Company also announced that J. Patrick OGrady will become the
Companys Executive Vice President and Chief Financial Officer. Mr. OGrady
is currently a partner with KPMG LLP, where he has served in that capacity
since 2002. Prior to that time, Mr. OGrady was employed by Arthur Andersen
LLP, where he was a partner from 1997 through 2002. He has been a certified
public accountant since 1985, and has extensive experience in public
accounting, having served multiple publicly-traded REITs. Mr. OGrady is
expected to commence employment with the Company on July 1, 2006, and will
replace Dennis J. OLeary who currently serves as interim Chief Financial
Officer.
"We are very excited to welcome Pat to our management team at GMH,"
commented Gary M. Holloway, Sr., Chairman, President and Chief Executive
Officer of the Company. "We conducted an extensive search for a CFO
candidate with the requisite technical accounting background and
understanding of the REIT industry. Pat is a phenomenal addition to the
organization and will play a critical role in the Companys ongoing
implementation of policies and procedures that are designed to remediate
the previously identified weaknesses in our internal control over financial
reporting. We are confident that, under Pats leadership, we will more
effectively manage our accounting and financial reporting processes, which
will promote the delivery of accurate and timely results of operations to
our shareholders."
Extension of Waiver of Financial Covenant Under Credit Facility
As previously reported in the Companys press release dated March 31,
2006, the Companys credit facility contains a financial covenant requiring
that audited annual financial statements be delivered to the lender
syndicate no later than 90 days after the end of a fiscal year. The Company
previously obtained a waiver with respect to this covenant that extended
the deadline for delivery of the Companys 2005 audited financial
statements to May 15, 2006. In light of the additional time required to
complete the audit of the 2005 financial statements, the Company has
obtained another waiver from its lender syndicate that further extends the
deadline for delivery of 2005 audited financial statements from May 15,
2006 to June 30, 2006. The waiver also extends the deadline for the
delivery of unaudited financial statements relating to the first quarter of
2006 until June 30, 2006.
Update on Remediation of Material Weaknesses in Internal Control Over
Financial Reporting
The Companys Board of Trustees and management reaffirm their
commitment to properly address the identified material weaknesses and
significant deficiencies in internal control over financial reporting,
which include (i) "tone at the top" concerns, (ii) inadequate processes and
staffing, an insufficient number of personnel with requisite skills and
competencies within the accounting department, and an inadequate level of
oversight to accurately assess the full accounting impact of the Companys
operations, and (iii) inadequate internal communication and monitoring of
policies and procedures. The weaknesses and deficiencies identified by
management will be discussed in appropriate detail in the Companys Form
10-K.
The Company reiterates that while the Audit Committees investigation
resulted in the identification of material weaknesses in internal control
over financial reporting, the investigation did not uncover any instance in
which anyone, having been advised of what GAAP required, intentionally
instructed the accounting department to falsify financial information.
Management is in the process of implementing a number of policies and
procedures throughout the organization that are designed to assure the
effective remediation of these weaknesses and deficiencies, and has been
working with its internal auditors, as well as the Audit Committees
outside forensic accounting consultants, in reviewing and assessing the
Companys accounting department and the development and implementation of
appropriate processes and financial systems. The Audit Committees
independent review also has been focused on designing remedial measures,
strengthening internal controls and making improvements to processes. A
more detailed discussion of the material weaknesses and related remediation
plan will be included in the Companys Form 10-K; however a summary of
remediation efforts that the Company has begun to implement to date
includes, but is not limited to the following:
* the hiring of Mr. OGrady (effective July 1, 2006) to assist the Company
in developing more effective accounting systems, controls, policies and
procedures. The Board of Trustees plans to establish as a key goal for
Mr. OGrady the fostering of communication, cooperation and coordination
among operational management and accounting personnel. The primary
goals of this enhanced interaction are to assure that (i) accounting
personnel are comfortable that they have received from operational
management a detailed and complete description of the matters for which
they are considering the appropriate accounting, and (ii) operational
management is confident that the advice they receive from accounting
personnel reflects a full and accurate understanding on the part of the
accounting personnel of the operational and related matters to which the
advice relates; and
* extensive direction by the Audit Committee to Mr. Holloway and other
senior members of management regarding the "tone at the top" behavioral
concerns, including mandated participation by our senior executive
managers in management training designed to improve their "tone" in
communications with others, as well as the implementation of a formal,
periodic "tone at the top" survey process designed to elicit comments
from employees on an anonymous basis; and
* implementation of intensive training and educational sessions among
senior operational personnel regarding the manner in which their
day-to-day activities affect reported financial results. Management
will develop and implement procedures (i) to improve the process and
documentation for the proper reporting of revenues and expenses, (ii) to
permit more effective communication between senior managers and
accounting personnel, and (iii) to provide for the timely detection,
prevention and mitigation of activities that could result in the failure
to comply with internal control processes and procedures.
Delay in Release of First Quarter 2006 Financial Results and Filing of
Form 10-Q
In light of the ongoing review and pending audit of the Companys 2005
financial statements, the Company will not release its financial results
for the first quarter of 2006 until the audit process for 2005 is completed
and final results of operations relating to 2005 are released. Accordingly,
the Company also has delayed the filing of its Quarterly Report on Form
10-Q for the quarter ended March 31, 2006. The Company currently expects to
release first quarter 2006 financial results and to file its Form 10-Q for
the first quarter by June 30, 2006.
About GMH
GMH Communities Trust (http://www.gmhcommunities.com) is a
publicly-traded Maryland real estate investment trust (REIT). We are a
self-advised, self- managed, specialty housing company focused on providing
housing to college and university students residing off-campus and to
members of the U.S. military and their families residing on or near bases
throughout the United States. GMH Communities also provides property
management services to third-party owners of student housing properties,
including colleges, universities, and other private owners. The Company,
based in Newtown Square, PA, employs more than 1,700 people throughout the
United States.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: Statements in this press release that are based on our current
expectations, estimates and projections about future events and financial
trends affecting us are "forward-looking statements." Forward-looking
statements can be identified by the use of words such as "may," "will,"
"should," "expect," "estimate" or other comparable terminology, and include
our 2005 estimated financial results, timing of filing of our periodic
reports with the Securities and Exchange Commission, and the restatement of
prior periods. These statements are inherently subject to risks and
uncertainties, including changes in adjustments, estimates, judgments,
policies and other factors that could affect the Companys reported
financial results in connection with the audit of the Companys 2005
financial statements, and the other risks relating to our business
presented in our filings with the Securities and Exchange Commission.
Forward-looking statements are made as of the date of this press release,
and we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL
MEASURES
Funds From Operations
Funds from operations, or FFO, is a widely recognized measure of REIT
performance. Although FFO is not a generally accepted accounting principle,
or GAAP, financial measure, we believe that information regarding FFO is
helpful to shareholders and potential investors. We compute FFO in
accordance with standards established by the National Association of Real
Estate Investment Trusts, or NAREIT, which may not be comparable to FFO
reported by other REITs that do not compute FFO in accordance with the
NAREIT definition, or that interpret the NAREIT definition differently than
we do. NAREIT defines FFO as net income (loss) before minority interest of
unitholders, excluding gains (losses) on sales of depreciable operating
property and extraordinary items (computed in accordance with GAAP), plus
real estate related depreciation and amortization (excluding amortization
of deferred financing costs), and after adjustment for unconsolidated
partnerships and joint ventures. In computing FFO, we currently calculate
minority interest of unitholders by multiplying income after income taxes
by the ratio of outstanding units of limited partnership (not owned by the
Company) to the number of outstanding units of limited partnership (not
owned by the Company) and common shares. In computing FFO for the second
and third quarters of 2005, we calculated minority interest of unitholders
by multiplying income before income taxes by the ratio of outstanding units
of limited partnership (not owned by the Company) to the number of
outstanding units of limited partnership (not owned by the Company) and
common shares. Under the latter method, minority interest expense used to
compute FFO included a portion of the Companys income tax expense which is
paid by the Company. The GAAP measure that we believe to be most directly
comparable to FFO, net income (loss), includes depreciation and
amortization expenses, gains or losses on property sales and minority
interest. In computing FFO, we eliminate these items because, in our view,
they are not indicative of the results from our property operations. To
facilitate a clear understanding of our historical operating results, FFO
should be examined in conjunction with net income (determined in accordance
with GAAP) as presented in the financial tables included in the financial
statements that we file with the Securities and Exchange Commission. FFO
does not represent cash generated from operating activities in accordance
with GAAP and should not be considered to be an alternative to net income
(loss) (determined in accordance with GAAP) as a measure of our liquidity,
nor is it indicative of funds available for our cash needs, including our
ability to make cash distributions to shareholders.
Diluted funds from operations per share ("Diluted FFO per share")
Diluted FFO per share is (1) FFO adjusted to add back any convertible
preferred share dividends and any other changes in FFO that would result
from the assumed conversion of securities that are convertible or
exchangeable into common shares divided by (2) the sum of the (a) weighted
average common shares outstanding during a period, (b) weighted average
common units outstanding during a period and (c) weighted average number of
potential additional common shares that would have been outstanding during
a period if other securities that are convertible or exchangeable into
common shares were converted or exchanged. However, the computation of
Diluted FFO per share does not assume conversion of securities that are
convertible into common shares if the conversion of those securities would
increase Diluted FFO per share in a given period. The Company believes that
Diluted FFO per share is useful to investors because it provides investors
with a further context for evaluating its FFO results in the same manner
that investors use earnings per share in evaluating net income available to
common shareholders. In addition, since most equity REITs provide Diluted
FFO per share information to the investment community, the Company believes
Diluted FFO per share is a useful supplemental measure for comparing the
Company to other equity REITs. The Company believes that diluted EPS is the
most directly comparable GAAP measure to Diluted FFO per share. Diluted FFO
per share, as it is based on FFO, has most of the same limitations as FFO
(described above); management compensates for these limitations by using
the measure simply as a supplemental measure that is weighed in the balance
with other GAAP and non-GAAP measures.
The following table presents a reconciliation of the estimated
unaudited FFO to estimated unaudited net income, and estimated unaudited
FFO per diluted share to estimated unaudited diluted EPS, for the twelve
months ended December 31, 2005:
Twelve Months Ended
December 31, 2005
FUNDS FROM OPERATIONS (FFO):
Net income $6,209
Add:
Minority interest 5,870
Depreciation on real property 25,280
Amortization of lease intangibles 8,235
FFO $45,594
FFO per share/unit -- basic $0.72
Weighted-average shares/units outstanding -- basic 63,261,662
FFO per share/unit -- fully diluted $0.69
Weighted-average shares/units outstanding --
fully diluted 65,613,052
EPS -- basic $0.19
Weighted-average shares outstanding -- basic 32,622,318
EPS -- fully diluted $0.18
Weighted-average shares outstanding -- fully diluted 65,613,052
For more information contact:
At The Company Financial Relations Board
Kathleen M. Grim Claire Koeneman Joe Calabrese
kgrim@gmh-inc.com (Analyst Info) (General)
610-355-8206 (312) 640-6745 (212) 827-3772
10 Campus Blvd.
Newtown Square, PA 19073
Gregory FCA Communications
(Media contact)
Greg Matusky
greg@gregoryfca.com
610.642.8253
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