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Education Realty Trust (NYSE:EDR)

Q4 2012 Earnings Conference Call

February 19, 2013, 10:00 am ET

Executives

Brad Cohen – IR, ICR

Randy Churchey – President, CEO

Chris Richards – SVP, COO

Tom Trubiana – SVP, CIO

Randy Brown -- CFO

Analysts

Paul Poskon – Robert W Baird

Karin Ford – KeyBanc Capital Markets

Matt Rand – Goldman Sachs

Alexander Goldfar – Sandler O’Neill

(Jeremy Roan – Healther Lines)

Operator

Greetings and welcome to the EDR Incorporated fourth quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Cohen of ICR. Thank you, sir. You may begin.

Brad Cohen

Thank you. Good morning. During today’s call, management may make forward-looking statements. These statements are based upon current views and expectations. Such statements are subject to risks and uncertainties and other factors that could cause the actual results to differ materially from future results.

Risk factors relating to the company’s results and management’s statements are detailed in the company’s annual report on Form 10-K and other filings with the Securities and Exchange Commission.

Forward-looking statements refer only to expectations as to the date on which they are made. EDR assumes no obligation to revise such statements as a result of new information due to development or otherwise.

It is now my pleasure to turn the call over to Randy Churchey, President and Chief Executive Officer. Randy?

Randy Churchey

Good morning. Thank you for joining us for the EDR fourth quarter 2012 earnings call. For today’s call, I will make a few brief comments. Chris Richards, our Senior Vice President and Chief Operator Officer, will review property performance and follow 2013 leasing.

Tom Trubiana, our Chief Investment Financial Officer, will review the quarter’s performance and 2013 earnings guidance.

I am pleased with our many accomplishments in 2012 and, as we begin this year, our momentum is continuing. In 2012, we improved our portfolio of owned communities through new developments, acquisitions and selected sales.

We commenced construction on Phase 2 of the University of Kentucky’s on-campus (revalitization), a delivery of over 2300 beds in 2014.

We strengthened the balance sheet and we produced an industry leading increase in same-store net operating income of nearly 6%. All of these accomplishments resulted in an increase in core FFO per share of over 9%.

Yet we did have a misstep with the finish to the fall of 2012 leasing campaign. Consensus industry same-store revenue increases ranged from flat to less than 3%. We ended at a same-store revenue increase of 1%.

After two consecutive years of industry leading increases in same-store revenue, this finish was humbling and disappointing. But we’ve learned from this experience and believe we will perform better this fall. It is nice to see our strong start to the fall of 2013 leasing cycle.

I’ll be making a few comments about our portfolio of communities. Over the last three years, we’ve purchased more than $500 million of communities, developed $91 million of owned assets and disposed of $195 million of smaller, lower growth assets.

These transactions have transformed our portfolio of communities into one of the best located, strongest cash flow generating, collegiate housing portfolios in the country.

At the end of 2012, our own communities had the following characteristics: medium distance from campus of 0.2 miles, down from one mile three years ago; medium age of nine years, a decrease of 25% from three years ago; and an average monthly rent of $571 per bed, an increase of 36% over the last three years.

We will continue to refine our portfolio of communities but I can say the heavy lifting is over. The growth profile of our portfolio should endure due to its focus on well-located communities at larger, more robust universities that are expecting to see their enrollments grow.

We will continue to add communities to our portfolio. We have announced $380 million of 2013 and 2014 developments and $54 million of auction opportunities for an aggregate of $442 million of new assets. We are also working on additional developments and acquisitions that will drive value.

For EDR, the most exciting external growth opportunity is for on-campus developments under our on-campus equity ONE plan. By the end of 2014, our portfolio will include $283 million of these assets; two at Syracuse, one at the University of Texas in Austin and five at the University of Kentucky with more to come.

We believe this area of investing will continue to grow as more universities see the benefits of these successful partnerships. Most state universities face many of the same challenges such as reduced support from constrained state budgets, older on-campus housing and demand on institutional funds for academic and support service initiatives.

The declining state support for higher education is the norm. These external factors provide a great opportunity for companies such as ours and we are well positioned to win these opportunities.

Currently the number of companies that have the proven on-campus development and management expertise, size, transparency and financial strength necessary to successfully compete for these university mandates is very limited. These EDR strengths currently provide a strong barrier to entry into this market.

The number of opportunities and volume of discussions we are having with other universities continues to increase, however, we cannot control the timing of these prospects.

We have made great progress over the last three years, improving our portfolio, balance sheet, processes and team while simultaneously delivering increases in shareholder value.

For the three years ended December 31, 2012, EDR’s total return to shareholders is 140%. This return ranked EDR first versus all public student housing REITs, first versus all public multifamily REITs and 12th out of the entire REIT universe of 122 companies over this time period. We are proud of this accomplishment and look forward to creating meaningful shareholder value in the years to come.

Now Chris will discuss property operations.

Chris Richards

Thank you, Randy. Fourth quarter same-store net operating income declined 2.7%. This drop was the result of flat revenues and a 3% increase in operating expenses. For the year, same-store revenues increased 4%, yet same-store expenses increased only 2.3% as our continued focus on controlling costs resulted in a net operating income increase of nearly 6%, the second consecutive year of 6% same-store NOI growth.

I am pleased with our property operations team’s ability to control expenses. For the last three years, average same-store expenses have remained below 2% per year.

We are off to a solid start for fall 2013 preleasing. Our same-store portfolio is 39% leased for fall ’13, 4.6% ahead of this time last year. Based on our preleasing to date, we are projecting fall ’13 same-store rental rates to increase 2.2% over the prior year. As a result, same-store total revenue is projected to increase in a range of 3% to 5% for the ’13-’14 lease terms.

As you can see from our supplemental, we have rate reductions at only three assets. The rates we achieved last leasing cycle have held and, importantly, we haven’t (wildly) cut rates to achieve this early occupancy growth. Obviously, we are early in the leasing cycle.

Please note on Page 9 of the earnings supplemental we incurred the same-store property by occupancies achieved for the ’12-’13 year. We think this gives additional transparency and insight into current preleasing.

For example, being ahead of last year in preleasing for a community that achieved 100% in the prior year, while good, will not lead to an overall increase in occupancy in the fall as it obviously cannot exceed 100%.

Focusing on the tier that achieved 95% or less occupancy last year, we are 2.7% ahead, which implies we are trending in the right direction but there is still room to improve.

Last year, the pacing of new leases at primarily five communities nearly halted over the last month of the cycle. These five communities accounted for 75% of the occupancy shortfall.

Let me provide a leasing update on those five assets. We disposed of our star path University of Arizona asset during Q4. Our North Carolina State asset, University Towers is slightly ahead of last year’s leasing trend. This building is primarily a freshman building and NC State admissions is steadily working on notification to the high school seniors who have been accepted.

We anticipate growth in the freshman enrollment for ’13-’14. Also, we have implemented a more aggressive campaign to attract sophomore residents. We are making up ground at our Statesboro asset as it is currently ahead by nearly 14%.

We started the year with an aggressive renewal campaign that has generated positive results. College (states) in (Purdue) continues to battle the new supply options in walking distance to campus. We have added a late night (settle) to overcome this objection and will continue to make adjustments as needed.

And lastly, our (Palluki Point) asset at Southern Illinois University struggles to climb ahead of last year’s leasing pace. The University reported that spring ’13 enrollment declined 7% but that ’13-’14 applications were up over prior year, which is encouraging.

Our aggregate new communities preleasing is pacing as expected. A couple properties of note: first, at our University of Kentucky asset, Central Hall, you may notice that we did not show preleasing data for this community. We are waiting for the on-campus assignment process to be completed.

However, demand has exceeded beds by over 250 students thus far and this community is the number one choice of incoming UK students based on housing preference reports from early housing applications.

Turning to our new development at Arizona State University, Downtown Phoenix Campus, leasing is moving slower than anticipated. We have initiated a multifamily marketing campaign as we may be a year or two early with this delivery.

We underwrote this asset at 90% in anticipation of its lower first two years. The campus continues to be built out and expanded. In 2014, the ASU law school is moving downtown near our location and the ASU biomedical campus continues to show growth.

In summary, across our portfolio, occupancy and net rental revenues are tracking in line with our annual budget. Again, it’s early in the preleasing cycle. Our team is prepared and energized to regain market leading leasing results in 2013.

I will now pass the call to Tom.

Tom Trubiana

Thank you, Chris. 2012 was an active year for external growth at EDR. During the year, we purchased $277 million of high-quality, well-located assets pedestrian to the University of Arizona, East Carolina University, Michigan State University, Penn State University, Texas (inaudible) and Oklahoma University, clearly all Tier 1 universities.

The weighted average per share economic count rate of these well-located acquisitions is forecasted to be 6.3%.

Late in the fourth quarter of 2012, EDR acquired the ground lease and adjacent parking garage at University Towers, adjacent to North Carolina State University for $7.5 million. This acquisition substantially adds to University Towers’ residual value.

These acquisitions, along with $91 million of 2012 development deliveries and recent strategic dispositions, repositions our portfolio and will add long-term value for EDR shareholders.

Moving to developments and potential acquisitions, you may want to refer to Page 11 of our fourth quarter supplemental. All 11 company-owned 2013 and 2014 development deliveries continue to progress on schedule and on budget.

In the aggregate, we’re developing or have purchase auctions that, once completed, will add over $442 million of assets to the company’s owned asset portfolio. EDR anticipated exercising its option to purchase the Retreated State College of 587 (inaudible) located near Penn State University in the beginning of the fourth quarter in 2013. This property is 70% preleased for the 2013-2014 school year. The first year of economic cap rate for this acquisition is forecasted to be 6.25%.

During the first quarter of 2013, EDR formed a joint venture with GEM Realty Capital and Schenk Realty Group to develop and own a new off-campus collegiate housing community at the University of Minnesota.

EDR will be a 50% owner and will manage this 901-bed community on behalf of the joint venture. The anticipated per-share economic yield on this development is forecasted to be in the mid 7% range.

Now let me add a little more information related to our development activity at the University of Kentucky.

Phase 2 of our public-private partnership with the University of Kentucky continues as planned. This phase of the multiyear (revolitization) plan will deliver over 2300 beds in 2014 at a cost of $134 million. This is in addition to the $26 million Phase 1 delivery of 601 beds in the summer of 2013. All five 2013 and 2014 development sites are progressing on schedule and within budget.

Phase 2 continues UK’s massive plan to systematically replace outdated residence halls with modern, state-of-the-art living-learning accommodations. Ultimately, this program is expected to take five to seven years and increase UK’s total on-campus housing to 9000 beds.

We are actively working with UK on the 2015 deliveries. We have recently been informed by UK that the process to obtain state legislature approval for future housing deliveries has changed and that the university can now obtain legislative authority for the projects when needed rather than in the biannual budget process.

This change enhances UK’s ability to obtain future approvals for future phases when needed. Currently, the EDR development team is working with the UK administration towards the presentation to and vote by the University of Kentucky Board of Trustees for the 2015 deliveries in the late second quarter of this year with anticipated state legislative approval shortly thereafter.

All of the UK developments will be funded, leased and operated by EDR through our ONE plan. For purposes of managing future deliveries of our development pipeline, we continue to allocate approximately $100 million of our capacity for additional UK deliveries each year through 2017.

We announced today that EDR has recently been awarded a public-private partnership with Wichita State University for a 750-bed development. We are currently working with Wichita State to determine the best financing option for their needs. Currently, we have listed this award on Page 12 of the earnings supplemental.

Lastly, allow me to provide a quick summary of the third-party developments at universities in Pennsylvania.

The third party development at Mansfield is under construction and progressing as anticipated. The Westchester project is expected to post financing and start construction next month.

The East Strasberg and (inaudible) projects are expected to close this summer. The (Bluesberg) University project is on hold and we have removed it from the financial supplement until such time that it may once again become an active development.

In closing, we want to reiterate that our active pipeline of potential acquisition and development opportunities both on and off campus remains fairly robust. The increase in the level of interest and potential ONE plans is particularly noteworthy.

With that report, allow me to turn the call over to our CFO, Randy.

Randy Brown

Thank you, Tom. Core FFO per share in the fourth quarter was $0.16, up 14% over last year’s fourth quarter of $0.14. For the year, core FFO was $0.47 per share, a 9% increase over 2011.

Total community revenue increased to $40 million for the quarter, a nearly 37% increase over fourth quarter of 2011. Net operating income was $23.5 million, up over 36% compared to last year’s fourth quarter as the financial impact of new communities fueled our growth.

The fourth quarter 2012 same-story NOI was down 2.7% resulting from flat same-store revenue growth as compared to last year and same-store operating expense increasing 3.3%.

Flat growth in revenue is reflective of our lower occupancy from fall 2012 leasing, offset by higher rental rates while operating expenses increased largely due to increases in quarterly marketing efforts as we kick off this year’s pre-leasing programs earlier than prior years.

Year-to-date, same-store revenue was up 4%, operating expenses grew a modest 2.3% and net operating income increased 5.7%. Our balance sheet and capital structure continues in excellent shape and our debt metrics are strong.

For the trailing 12 months, as of December 31st, our interest coverage ratio was 4.2 times, net debt to adjusted EBIDA was 5.7 times and debt to gross assets was 31.7%.

In January, we closed on an amended credit facility, which upsized our borrowing availability to $375 million with an expendable corium of up to $500 million. This new facility lowers our overall cost to borrowing by 17 basis points and provides a longer 48 month term.

With a large, unencumbered asset base, a low leverage balance sheet and our new $375 million credit facility, EDR has the financial strength and flexibility to fund all announced acquisitions and developments and source new acquisition opportunities while maintaining debt metrics well within an acceptable multifamily ranges.

Now, turning to our 2013 guidance, based on our current expectations of market conditions and operating results, we expect full-year 2013 core FFO per share to be in the range of $0.53 to $0.57, an increase of 17% over 2012 at the midpoint.

This estimate is based in part on the following assumptions: full-year same community revenue growing 1% to 3%, operating expenses increase 2.5% to 3.5% and net operating income being flat to 3% higher.

Same community revenue growth for the current lease term is projected to be approximately 50 basis points and we are projecting a 3% to 5% increase in leasing revenue for the fall of 2013 lease term based on our preleasing to date.

We believe our non-same-store portfolio will achieve or slightly exceed our underwriting, our initial underwriting. NOI contributions of $6 million to $6.5 million from our 2013 development deliveries excluding related pre-opening expenses, 2013 third-party development fees of $2.1 million, which represents current, active construction projects in process for 2013, third-party management fees at $3.4 million based on existing contracts, general and administrative expenses of approximately $7.2 million, excluding acquisition or development costs, this represents a 5% increase over 2012 primarily due to the substantial growth in our own portfolio as evidenced by the 31% increase in gross assets over the past year, $398 million of new developments being delivered in 2013 and 2014 and additional marking and related costs associated with the ONE plan efforts.

We believe this increase is a prudent investment for the future. Pre-opening expenses for 2013 of $2 million associated with our 2013 and 2014 development deliveries; these expenses represent nearly $0.02 of annualized FFO per share and are not added back for core FFO purposes.

For interest expense, we estimate a range of $17 million to $20 million net of capitalized interest of between $7 million and $6 million. As mentioned in the earnings release, our guidance does not assume any additional ONE plan developments, acquisitions including pre-sales or purchase options, asset sales, new third-party development and management contracts or the impact of any additional and capital transactions.

With this overview, operator, please open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Paul Poskon – Robert W Baird.

Paul Poskon – Robert W Baird

I know that you don’t have any acquisitions in two guidance but clearly over the last couple of years you’ve been ramping up the volume. Are you seeing anything in the deal environment that would suggest to you we should expect a slowdown in deal flow?

Tom Trubiana

As you’re aware, in 2012, we acquired about $279 million of assets. And we’re not really seeing a slowdown but we’re (playing) – in fact, there are a lot of assets to market but we’re going to remain disciplined.

Pretty much all of the assets that we have acquired in the last couple of years have been at Tier 1 institutions and close to campus, so while there is a lot of profits coming to market, we’re going to continue to be selective.

Sorry, I can’t tell you that we will be anywhere near that same level next year but there are a number of assets that we are currently underwriting.

Paul Poskon – Robert W Baird

Are any of those portfolio size or do they continue to be more one-off?

Tom Trubiana

More of the one-off at this point in time.

Paul Poskon – Robert W Baird

And then Christine, could you just – if you can share a little bit more color on the preleasing trends for next year and are any of the schools doing anything differently, trending on housing information earlier or change in on-campus living requirements, just anything that you’re hearing?

Chris Richards

I’m excited, obviously, about the great part to our 2013 leasing and, in particular, excited about what we call Tier 1, which is those properties last year that opened below 95% because I’ve got growth there of 270 basis points over prior year, so that’s an indicator to a strong start.

As far as the universities are concerned, seeing-doing differently, obviously Ohio State large announcement about changing their freshman-sophomore live-on requirement in ’16 has been a topic of conversation but that’s not a general or a global trend, so not seeing initiatives like that coming to the table in markets anywhere else in the country.

Operator

(Operator Instructions) Your next question comes from the lien of Karin Ford – KeyBanc Capital Markets.

Karin Ford – KeyBanc Capital Markets

Following up on the pre-leasing, so same-store rental growth you currently expect 2.2% and then revenue of 3% to 5%. So can you just talk a little bit about to get to an 80 to 280 occupancy increase, basically an occupancy increase that you’ve got baked in there, how many of the five assets need to come around and are you expecting some progress in all five or a lot of progress in a portion of the five? How are you looking at those?

Chris Richards

I’d love to say that I’m expecting a lot of progress in all five but like I said in my prepared remarks there are still concerns about the (Purdue) market and our location and we’re trying to combat those.

In general, because it’s a larger group of assets, I think occupancy will come from – the majority will bring us to the numbers that we need for revenue, even though I’ll have a few that will still fall through.

Karin Ford – KeyBanc Capital Markets

I guess we heard on one of your competitors’ calls that there seem to be some pricing pressure in the marketplace from a lot of private guys who were under-occupied last year. Are you guys seeing that as well and do you have an upward or a downward bias on that 2%, 2.2% rent growth estimate?

Chris Richards

No bias on the growth estimate and, yes, I am seeing some of our competitors. Surprisingly some of our competitors have done rate reductions that I’ve typically not seen from them before. But that’s obviously everybody’s objective to lease early and get the occupancy.

Karin Ford – KeyBanc Capital Markets

Then two questions for Randy on the guidance. First, how is the development spend for this year funded? How is that assumed in the guidance?

Randy Brown

Karin, we just closed on a $375 million credit facility, so our guidance right now is just using the majority of that as well as internal sourced cash to fund our developments. You can see what we have left to fund, if you look in our supplemental and you look on Page 11, so you’ll see that we’ve got a big portion of our current developments already funded.

Some of those are joint ventures, by the way, which – and those joint ventures we are using construction on, so we don’t really have any capital transactions embedded in our guidance at all.

Karin Ford – KeyBanc Capital Markets

Then just on the $2 million of pre-opening expenses you have on the development this year, what was the corresponding spend for that in 2012?

Randy Brown

It was about $1 million.

Operator

(Operator Instructions) Your next question comes from the line of Matt Rand – Goldman Sachs.

Matt Rand – Goldman Sachs

I appreciate your remarks earlier in the call about the on-campus opportunity. It looks like you didn’t add any new on-campus development projects this quarter. Can you talk about what you’re seeing in the market in terms of RFPs and what conversations you’ve been having with colleges?

Randy Brown

Actually, we did have one. It’s not certain whether it would be a ONE plan or not. We were awarded Wichita State within the last 30 days, the 750-bed community.

Matt Rand – Goldman Sachs

So that could still go ONE plan at this point.

Randy Brown

Yes, the University initially really came out with an RFP requesting tax exempt financing and, of course, as we presented, we offered the alternative to ONE plan. It’s uncertain at this point in time.

There doesn’t seem to be, for reasons I can’t explain, as much pressure on them as far as preserving their debt capacity. At least that’s from the CFO, so we’ll know more of that probably in the next 30 days.

But as far as the activity, I think it would be inappropriate to name the schools and all but Kentucky has really been a game changer and I can tell you that there are numerous schools, both college and visiting Kentucky on a pretty regular basis.

There are systems, university systems, that are in what I would call the preliminary stages of exploring monetizing either their existing housing or having an equity model. It’s all about the pressure on capital for the schools and as they compete for students trying to make sure that they have quality student housing.

So other than to state that the activity, most all of the RFPs that come out do want to look at both tax exempt and some form of an equity model and clearly there seems to be a bias for tilt more and more towards the equity primarily because of the pressures of having alternative sources of capital for the schools.

Matt Rand – Goldman Sachs

Now is most of that equity for projects that would be one-off deals or are you actually seeing other universities looking at doing a Kentucky-style, the entire system kind of a deal?

Randy Brown

Nothing right now that is at the magnitude of Kentucky but some are multiple phases.

Matt Rand – Goldman Sachs

Then on the (Owawa) investment, can you talk about the economics on that? It looks like you spent money to get a 10% interest and in return you will have reduced operating costs.

Randy Churchey

Yes, Matt, well, first, our partners prefer that we not disclose the valuation of their company. I hope you understand that. But for EDR, the investment dollars is insignificant but we do expect appropriate short-term and long-term return.

But most importantly, this partnership with (Eloit), who we believe is the best provider of broadband network services to the student housing industry, this ensures that this number one amenity for our residents will be delivered reliably and efficiently over time.

We also believe that working with (Eloit) will open up other opportunities for our residents’ benefit and hopefully for our benefit as well.

Operator

Your next question comes from the line of Alexander Goldfar – Sandler O’Neill.

Alexander Goldfar – Sandler O’Neill

So Randy, on the internet investment is there any more color that you can provide as far as – we’ve seen in the past the apartment guys help create pricing systems. By contrast, on the multi, we’ve seen companies make internet investments that end up in write-offs. So is there just a little more perspective that you can provide on what the benefit is to EDR by owning a stake of this internet company.

Randy Churchey

I can assure you that you’re not going to see any sort of meaningful write-off of this investment for us because, as I said earlier, the amount of money that we’ve invested is not a large number.

Look, we think that there’s a variety of other things that we can get from this partnership other than just a reliable broadband to our communities at possibly a reduced cost. We are working with them and a variety of other related avenues that we think could possibly (gen) some meaningful numbers in the future.

But at this standpoint it’s all fairly speculative and in the planning phases. I really can’t say anything more than what I have. I don’t suggest you model any real numbers into our financials in the future for this investment until we have something to announce.

Alexander Goldfar – Sandler O’Neill

And just where are they located?

Randy Churchey

South Carolina.

Alexander Goldfar – Sandler O’Neill

And then the second question is – this is for the other Randy – just want to get your take on ATM, what you think of preferred, just some of price (talk) we’ve heard sounds like they’re very attractive. Maybe your common equity is still the most attractive way for you to go.

And then bigger picture now that you’re beyond the UK deal and you’ve upsized your credit line, thoughts on reengaging on the unsecured front.

Randy Brown

We have certainly talked about contemplating going investment grade or pursuing investment grade and it’s still something that we have on – as part of our overall plan. I can’t really give you a timeline of when that may happen but certainly if we wanted to look at a preferred, issue being investment grade would certainly reduce the cost of that.

I do think preferreds even now, to quote high yield, preferred shares are still very reasonably priced in today’s market. We don’t at this point don’t have any plans for a preferred offering. But that’s not to say that we haven’t explored that but I think the timing has to be right not only with the market but also given our possible time horizon to achieve investment grade.

On the ATM, that is a very efficient way to raise capital, as you know. We have not – while we’ve been somewhat active, we don’t have a very large ATM program. I think you probably recall that our last filing, the maximum size was $50 million.

So while it is a very efficient form to put capital out, it’s not going to raise a lot of capital for us but it is an option. It is something that we find useful to match for uncertain expenditures. So we like it.

Alexander Goldfar – Sandler O’Neill

And then as you think about preferred (gross) equity, how do you think about the cost difference as far as over time as you’re going to grow the portfolio just as a potential dilution? Do you think about it that way or is it purely just which one is a better cost?

I guess I’m a little curious more about what you said timing for preferred as far as use for it versus just the level of pricing in the market.

Randy Brown

Well, again, I don’t think it would make a lot of sense for us to embark on a preferred issue if we think we’re going to be investment grade any time in the near term. The cost differential in the yields is such that I think that wouldn’t necessarily be prudent on our part.

But I think at the appropriate time, Alex, I think there is a place for a preferred offering in the capital (stack of the companies). I just don’t know when that is right now.

Operator

(Operator Instructions) Your next question comes from the line of (Jeremy Roan – Heather Lines).

(Jeremy Roan – Healther Lines)

I was hoping you guys might be able to share some more light on the preleasing for 2014. What is it you guys are doing differently that you did not do last year to improve that number?

Chris Richards

One of the things that we’ve done is taken a less aggressive approach on (way) growth renewals in select markets and it’s working. And starting our, really accelerating our marketing dollars and our renewal and new leasing campaign earlier than we’ve ever done before.

And what – the approach we’ve taken on the renewals is working. I’m ahead of renewals by 500 over the prior year and in true numbers of leases. So I’ve got 500 more renewals from prior year and obviously within occupancy of 90% of opening I had less people to renew to than prior year, so I think that’s really telling that our efforts are working.

We’ve done some other things. We’ve deployed some capital dollars with the installation of maybe TVs and furniture earlier instead of the term which would be later in the year to generate some of the results. And we’re seeing the results of our efforts.

Operator

Your next question comes from the line of Paula Poskon – Robert W Baird.

Paula Poskon – Robert W Baird

Just wanted to follow up again on the University of Kentucky on Phase 3. Isn’t this about the time of the year that the Kentucky state Legislature tells you when you can spend your money? Has that happened yet?

Tom Trubianab

Paula, they are running – actually has been a change in that. Up until very recently – we were made aware of this about two weeks about – that funding was part of a biannual funding, so a two-year increment and there was only one time that you could do that.

I’m not sure. We’ve been informed by Kentucky that the state legislature has opined that they don’t need to go through that and only do that at the biannual time. And so right now the schedule is candidly there’s a group of us in Kentucky later today. It’ll get presented to their board towards the end of May an they intend and believe they will have state legislature approval probably in June of this year.

And so no longer is it one bite at the apple. They can actually seek that state legislative approval at any time and we see that as a positive, as do they.

Operator

I would now like to pass the floor back to management for closing comments.

Randy Churcheyb

Well, thank you for your time today and I also want to thank our team for a stellar three-year performance and

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