With the second student housing REIT, EdR (formerly Education Realty Trust), hosting its first quarter earnings call yesterday, it’s apparent that the hot topic this earnings season could be pre-leasing velocity for the student housing companies, especially for those whose numbers have fallen behind last year’s.
The strong financial results reported by EdR on Thursday afternoon came as little surprise, with the company’s core funds from operations showing a 34 percent increase year-over-year at 12.6 million. And its same-community net operating income (NOI) was up 10.8 percent over the first quarter of 2011.
Many of the analysts were more focused on the pre-leasing activities of EdR and asked the company to explain how its numbers stacked up against competitor American Campus Communities (ACC), which reported financial results on Wednesday and revealed a lag in pre-leasing.
According to Randy Churchey, president and CEO of EdR, comparing pre-leasing percentages to other student housing REITs is difficult because of different geographies within portfolios. “At UConn we’re 100 percent full and at Alabama, we’re 28 percent full. And it truly does fluctuate from market to market. Some markets are used to leasing early because the good spots are gone and in some markets it’s very, very late,” he said. “I think we typically trailed ACC by around 10 percentage points but it’s truly the composition of the portfolio,” he added.
EdR says it is still comfortable that it will reach its goal of 96 percent occupancy across its portfolio by the fall of 2012. The company’s rental rate push projection is targeted at 4 percent. But the main issue on everyone’s minds seemed to be what progress had been made on the company’s landmark deal with the University of Kentucky, inked last fall. The company broke ground on Phase I of the project on April 17 and expects to deliver it in August, 2013. The deal, which is a public-private partnership with a long-term ground lease, gives EdR ownership and management control of the University of Kentucky’s on-campus housing it plans to build.
“Our largest opportunity at this point is at the University of Kentucky and we continue to make meaningful progress,” said Churchey. “We view this partnership with the University of Kentucky as a watershed event, not only for EdR, but also for our industry. We believe additional universities may look to this type of structure to replace their aging on-campus housing stock,” he added.
EdR has to pay a Kentucky prevailing wage to construction workers for the first phase, adding 7 percent to the cost of the project. The company expects the same requirement to be attached to future phases as well, once they are negotiated with the University. EdR plans to recoup this in it returns by adjusting rental rates accordingly.