Education Realty Trust Inc. Q3 2009 Earnings Call Transcript

Education Realty Trust Inc. (EDR)

Q3 2009 Earnings Call

October 22, 2009 10:00 am ET

Executives

Paul Bower – Chairman, President and Chief Executive Officer

Randy Brown – Chief Financial Officer

Craig Cardwell – President of Management Subsidiary, Allen & O'Hara Education Services

Tom Trubiana – Chief Investment Officer

Brad Cohen – Investor Relations

Analysts

Anthony Paolone – JP Morgan

Karin Ford – KeyBanc Capital Markets

Michelle Ko – Bank of America Merrill Lynch

Michael Levy – Macquarie Research Equities

Paula Poskon –Robert W. Baird & Co.

Presentation

Operator

Welcome to the Education Realty Trust Third Quarter 2009 Earnings conference call. (Operator Instructions.) I would now like to turn the call over to Mr. Brad Cohen.

Brad Cohen

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, 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 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 of the date on which they are made. Education Realty Trust assumes no obligation to update or revise such statements as a result of new information, future developments or otherwise.

It is now my please to turn the call over to Mr. Paul Bower, Chairman, President and Chief Executive Officer.

Paul Bower

Joining me on the call today is Randy Brown, Chief Financial Officer. Also with us today to answer any questions you may have about operations is Craig Cardwell, President of our Management Subsidiary Allen & O'Hara Education Services. And to answer any questions on the acquisition and development front, Tom Trubiana, Chief Investment Officer.

Our results this quarter are reflective of the earlier quarters in 2009, albeit at a slower pace than we would have liked due to a challenged economic backdrop. We continue to execute on EDR's strategic initiatives as we have discussed previously. These include working to optimize occupancy and manage our portfolio of student housing communities to maximum efficiency, addressing our 2009 debt maturities and pursuing new revenue sources for development activity and third-party management contracts.

This morning I will also provide some perspective on the operating environment for the student housing industry. Randy will add insight on our key financial metrics from the third quarter, review our 2009 guidance and then we will open the call for questions and answers.

Leasing for the 2009-2010 school year has been a challenge. We are 1.5 percentage points behind last year for the Legacy Portfolio and 2.4 percentage points ahead of last year for the Place Portfolio. Combined, the same store group leased to 90.5% this year compared to 91.1% at September 30, 2008, a 60 basis points decline year-over-year. When you add the joint ventures and managed properties, we are at 91.5% this year versus 92.3% last year.

The occupancies we achieved this year required greater discounting of rents and a higher level of concessions than in the past evidence of the challenging economy today. We are facing not only new competition in certain markets, but also more aggressive rental incentives from our competitors. While we do not expect new development to – while we do expect new development to slow in the coming years, we remain concerned about aggressive promotions to fill beds.

University enrollments have declined in a few markets due to planned downsizing despite strong demographics among the college-age population. The challenge for EDR is to regain occupancy in the weak markets and to drive rent in stable markets. Comparative leasing data on a property-by-property basis is in our supplemental package on page 12.

Third quarter 2009 net apartment rent for the Legacy Portfolio declined $11 or 3%, while the Place Portfolio net apartment rent was basically flat. The results, during the last four weeks of the quarter were impacted by deeper discounting of rents in certain markets. Furthermore, a reduction in last-minute-walkup business that we have experienced in certain markets in the past also affected this outcome.

The leasing of our two 2009 development projects also ended up softer than expected, as we communicated to you earlier in the year. Reserve at Saluki Point is 75.8% leased compared to 99.4% for Phase 1 alone last year.

The Carbondale, Illinois market experienced the combined pressure of 336 additional new beds coming online this fall and an enrollment decline of 325 students. Our on-campus development project at Syracuse University started the 2009-2010 school year 79.2% leased, 10 points below the year-one pro forma.

The rate of lease-up in this market was definitely behind expectation, but we believe, based on feedback from the student community, that in the coming year the project will be on target after further exposure to the market. Confirmation of this is, is the fact that we already have 154 applications and 83 leases in hand for the 2010-2011 school year. A year ago, we had no leasing activity this early in the season.

From an operating perspective, third quarter results were up attributable primarily to the new communities and the improvement in the Place Portfolio. Student housing revenue was up 2.1% over third quarter last year, while student housing operating expenses were up by 70 basis points quarter-over-quarter resulting in a positive net operating income gain of 5.6% in the third quarter 2009.

The initiatives we put in place on the operating cost side continue to work, as evidenced by the same community 290 basis point decline in expenses and the improvement in expenses at the corporate level of 280 basis points.

Thus, while we are achieving only modest revenue growth, we are still able to realize meaningful bottom line growth due to the significant reduction in quarter-over-quarter expenses. Furthermore, we expect that this controlled level of expense is sustainable and will continue at both the corporate and community levels for the balance of the year.

Third quarter funds from operation per share for the quarter was a loss of $0.01, one penny, which compares to FFO loss of $0.02 per share in the third quarter of 2008. On the development front, we have broken ground on two projects for delivery in August of 2010.

One is at Indiana University of Pennsylvania where we are underway with Phase 4, a 596-bed community with a total project cost of $37 million. This is most likely the final phase of the replacement of essentially all the student housing on this campus. The second project is a 500-bed Phase 2 project at Colorado State University Pueblo with a $34 million development budget.

While this does not represent a large development workload heading into 2010, we remain committed to sourcing and pursuing new development opportunities especially on-campus and where the opportunity exists to put our capital to work at an attractive return.

Two awarded projects, East Stroudsburg University and West Chester University both in Pennsylvania, are on temporary hold until viable credit enhancement returns to the tax-exempt bond market. Unfortunately, this will have a meaningful impact on our development fee stream in 2010 relative to 2009. We also continue to seek opportunities to add to the third-party management portfolio, however, no new accounts were added in the third quarter of 2009.

In the third quarter, we made meaningful progress on strengthening our capital structure and providing the company with additional financial capacity. In July, we completed an equity offering raising approximately $116 million in net proceeds. Approximately $31 million of those proceeds were used immediately to repay our line of credit.

We are now in the latter stages of completing the expansion of our existing Fannie Mae master credit facility to refinance the Place Properties debt due in December. The facility has undrawn capacity and provides us with the ability to upsize the commitment level by adding unencumbered properties to the borrowing base. Randy will fill in a few more details on this financing. We are also well into the process of establishing a new corporate line of credit far in advance of the March 2010 expiration of the current line.

Before turning the call over to Randy, let me update you on the progress of the CEO search. We have been moving the process forward interviewing candidates, but at this point in time we do not have anything to share. As soon as a board decision is made we will provide that to the market. Our target for completing this transition remains the end of this year or early in the first quarter of 2010.

With that, I will turn the call over to Randy and return following his comment for a wrap-up.

Randy Brown

We are pleased to report that our same community third quarter net operating income was up 4.8% over the comparable period in 2008 and marks our fourth consecutive quarter to achieve such quarter-over-quarter growth. Same community financial results in the third quarter saw slightly lower revenue, a 2.9% reduction in operating expenses, and net operating income was up $300,000 to $7 million.

If you refer to page 6 of our third quarter supplemental, you will see that our Legacy Portfolio revenue growth was down $285,000 or 150 basis points. The decrease was due primarily to an approximate 250 basis points reduction in occupancies as compared to the third quarter of 2008.

Our apartment third quarter average physical occupancy was 90.2%, which is consistent with the trend established at the beginning of the fall 2008 lease term. Regarding the Place Portfolio, revenue was up approximately $90,000 or 190 basis points over the comparable period last year primarily due to slight improvements in rental rates and other income.

For the third quarter of 2009, same community expenses declined $513,000 or 290 basis points when compared to the same period in 2008. This reduction was mainly driven my lower payroll, credit card discount fees and property taxes offset by higher maintenance, current costs and net bad-debt expense.

We have now produced meaningful cost reductions over 12 consecutive months. Our ongoing focus on costs and discipline, as it relates to staff reductions and wage and hiring freezes, resulted in third quarter corporate general and administrative expenses being down approximately 2.8% or $114,000 as compared to third quarter 2008.

Regarding our capital structure, as Paul mentioned, we are in the latter stages of expanding our existing Fannie Mae credit facility and expect it will be completed well before year-end. As most know, we have nine properties with approximately $99 million of first mortgage debt maturing this December.

We plan to use our expanded Fannie Mae facility to encumber eight properties with approximately $47 million of new first mortgage debt with an all-in blended fixed interest rate of around 5.6% based on today's treasury rates.

Once completed, this new debt structure will provide the benefit of further deleveraging our balance sheet while reducing the related cost of debt by approximately 80 basis points below the maturing debt interest rates.

Regarding our current corporate credit facility set to mature in March of 2010, we are pleased to have received $95 million in new bank commitments and are working towards the close of a new three-year credit facility by year-end. And although this replacement facility will contain tighter financing terms at a slightly higher cost of debt, we are pleased that our financial flexibility will be secured for the future.

EDR had total debt at quarter-end of approximately $456.7 million representing 45.7% of total gross assets. We paid off our corporate credit facility during this past quarter leaving no outstanding balance. Thus, the current availability on the corporate credit facility is approximately $47.1 million.

And finally we are narrowing our guidance range to $0.56 to $0.60 of FFO per share for the year. This new guidance includes the impact of our fall 2009 leasing results, additional shares issued and outstanding as a result of our July 2009 common stock offering, and an increase in our prior guidance for annual 2009 third-party development services fees, which we now believe will be approximately $7 million to $7.5 million.

Now let me turn the call back to Paul for some closing comments.

Paul Bower

Before taking questions, let me update you on our asset disposition efforts as part of our capital recycling strategy.

Initial response to the three assets we are marketing has been encouraging validating the thesis that student housing assets are and remain in demand. The three communities, the Reserve at Clemson in South Carolina, NorthPointe Apartments at Tucson, Arizona, and The Lofts in Orlando, Florida have all received initial bids.

Negotiations are underway, but it is important to understand that we are not forced to sell, and if we do not get to a level that is acceptable, we will not pursue these sales. Our thesis that student housing is a solid business remains intact. It is more important than ever for us to constantly evaluate and analyze each of our markets and assets to ensure our invested capital is generating the best return over time.

As the environment remains challenged, we will maintain our vigilance toward controlling costs to generate stable cash flow during this period of lower revenue growth. Our overall portfolio remains strong operationally with additional upside throughout the portfolio as we move ahead.

With that, let's take some questions.

Question-and-Answer Session

Operator

(Operator Instructions.) Our first question comes from Anthony Paolone – JP Morgan.

Joe Dossier for Anthony Paolone – JP Morgan

It's Joe Dossier, here with Tony. Question on the 2% decline in the rents of the legacy portfolio. Was that dragged down by a couple specific assets or was that more broad-based?

Craig Cardwell

Joe, this is Craig Cardwell. It was all related to a couple of assets. Overall, we outperformed the market. We do a lot of market research and we outperformed the market in all but three of our markets in terms of occupancy and rent. So it was drug down specifically by a very few assets and so you're dead-on in that assumption.

Joe Dossier for Anthony Paolone – JP Morgan

As you look at those assets, I guess there's a couple that you could pick out where there's occupancy in the 70s. Are there any of those where you view as an opportunity to push occupancy next year, or do you think there's some where the market's just going to be fundamentally tough for awhile and it's going to be tough to get that bump into next year?

Craig Cardwell

This is Craig. I think there's a great opportunity to move those back up. Frankly, while we're disappointed in how things kind of ended up, we're pretty excited about the future because we think we have still a very, very solid portfolio fundamentally.

It's an absolute fact that where we were harmed the most was actually less by the economy and more by over building. Frankly, desperate developers that were getting their last shovel in the ground in the last year that pushed properties into the market that probably wouldn't have been developed at any other time. So as that supply gets absorbed we'll move right back up to where we ought to be. But there's good upside potential for them.

Joe Dossier for Anthony Paolone – JP Morgan

Similar question, I guess, in the Place portfolio it looks like three that had pretty low occupancy and then two of them, I guess Clayton Place and Macon Place, they were low both last year and this year. Again, are those assets where you think you can push occupancy or is it just going to be tough in those markets to do that?

Craig Cardwell

In those specific markets, we think that there's going to have to be probably another solution, a different kind of repositioning solution. So we'll talk about that in the future.

Joe Dossier for Anthony Paolone – JP Morgan

Then turning to the developments, can you remind Phase One and Phase Two of Saluki Pointe where the occupancy of those two individually wound up this year? Do you have that breakout available?

Craig Cardwell

We don't. Once again, let me point out in that particular case there was an additional supply of housing that was added and a slight decline in enrollment. We also, because we had such great success last year, we were a little extra bullish on the rents a little more than we probably might have been. And so, once again we feel like that we're going to pull those two phases or combined, back right up to a good solid occupancy this next fall.

Joe Dossier for Anthony Paolone – JP Morgan

Do you have the initial yields where Syracuse wound up, and I guess where the Saluki Pointe wound up this year?

Tom Trubiana

This is Tom Trubiana. Let me address the Saluki Pointe. Keep in mind at Saluki Pointe we had always forecast that our initial year-one occupancy would be 90% and we ended up at 79%. One of the things that has helped us on a yield on cost basis is the total development cost actually came in at approximately $1.5 million less than what we had originally forecast.

And so while we're slightly down from the original estimates for year-one with the leasing we have with the rental rates for next year, actually the project yield stabilized for year-two, we should be back to what we previously had forecasted, which was north of the 9% project yield with unleveraged internal rates of returns that were close to 10%.

And the reason for that, Syracuse is a very early market, and while we tried to get the community center and the model open in the early fall and unfortunately we were unable to get them open until Spring, and now that students are able to see the quality of the product, we're pretty confident that we'll have a very successful lease-up for next year. So actually, other than the one year reduction in occupancy because of the cost savings, we should actually be able to maintain our cost on yield, or yield on cost actually better than we originally forecast.

In Carbondale, indeed admittedly it is disappointing because Phase One last year opened at essentially 100%. I am aware that Phase Two by itself actually, which is two and three-bedroom units, opened at 100% at the forecasted rates, but what really matters is how do the two phases function together.

And so at this point in time where we had previously forecasted that combined that the yield on cost would be something north of an 8, today we're something south of a 6. But as Craig has said, the goal and the intent is to turn that around and get that occupancy back up so that we can achieve our investment criteria.

Joe Dossier for Anthony Paolone – JP Morgan

On those assets, was it just the occupancy that missed two targets or did you also wound up cutting rents a little bit below what you had underwritten towards the end?

Tom Trubiana

Combination of both.

Joe Dossier for Anthony Paolone – JP Morgan

Last question, the two developments that I think Randy may have mentioned, just to confirm those are fee projects, correct?

Tom Trubiana

That is correct. Actually, West Chester Phase Two was actually scheduled for groundbreaking this past May and because of what happened in the capital markets with not being able to enhance the bonds, the project was not able to go forward.

I just say we'd use the words, we are cautiously optimistic that the project will go forward this coming summer, but still with uncertainty in the credit markets it's just a function of getting either a bank to provide a meaningful cost or a letter of credit to enhance the bonds, but we're cautiously optimistic that Phase Two will go forward. That does adversely impact the revenues we would have received in 2009 and 2010 because we recognize revenues on a schedule of percentage completion on the construction contract.

In the case of East Stroudsburg, we have a little more work to do. We are working with the school, the architect contractor to try to take some cost out of the project, as well as to find means to finance it. And so I think if you look at our supplemental it says to be determined so we're not quite as confident, but there is a very substantial commitment from the school to make this project happen. They have actually spent out of their own pocket over $1.5 million to date, which basically states something about the desire to get this done.

Operator

Our next question comes from Karin Ford – KeyBanc.

Karin Ford – KeyBanc Capital Markets

First question I think is for Craig. It sounded like the last six weeks of the leasing season you ended up having the trend on rents was down and I guess concessions probably up and you saw fewer walk-ins. Is that sort of the way it played out, and how does the sort of last fleecing rent trend impact your early thoughts on leasing for 2010-2011?

Craig Cardwell

That's pretty good insight. The last six weeks impacted probably about seven or eight of the communities. Most of the others were either substantially full or well into the mid to high 90s already and there was no impact. So it really affected very few properties where we had to make some pretty strong and some pretty aggressive decisions. In those cases, we have in mind a really good plan for this coming Fall.

Remember, I mentioned a little earlier that in many cases we were actually more adversely affected by supply than by the economy, and as those new units that were added get absorbed, and many were absorbed and many more will be absorbed this next year, we'll get back on top. Frankly, we have what we think is a really good solid leasing plan and rate plan for next fall.

We're of course not planning on releasing that information at this time, but we have a real good solid plan that takes into account where we've come from in those markets that have been more challenged and where there's been some excess supply, and in a couple of cases we're going to be doing some repositioning as well. So we're fully prepared to engage those markets where we've had the extra challenges, and get back on top.

Karin Ford – KeyBanc Capital Markets

I know it's early, but do you expect you'll be able to get the Place Portfolio up to the 90% target occupancy next year?

Craig Cardwell

With the exception of Clayton Place and possibly Macon, absolutely. And you can see that there's been really good growth in most of that portfolio. Those two have not done particularly well, and at Jacksonville State there was actually an enrollment decline and the university dorms didn't even fill there. But it really gets down to those two. With the balance of the portfolio we're very, very confident that we're going to be able to continue to move that forward.

Karin Ford – KeyBanc Capital Markets

Next question is just on the expense side. I know you said you're confident you're going to continue to be able to cut back on the expenses. It looks like the comps are getting a lot tougher in the fourth quarter, so what is it that gives you confidence you'll be able to continue to downsize on that front?

Craig Cardwell

I think what we said was that we're going to be able to sustain. I don't know that we said that we're going to continue to drive down costs that much more, but we think that what we put in place is sustainable. I think that that would be the way I would characterize our view on this.

Karin Ford – KeyBanc Capital Markets

A question on the asset disposition. Can you just talk about, in the bids that you've received what type of pricing you've seen? We've heard cap rates on student housing ranging anywhere from sort of 7 to 8.25. Is that consistent with what you see?

Tom Trubiana

This is Tom, Karin. Basically I think we previously communicated this. We actually had 90 different entities sign confidentiality agreements, which once again represents just interest in the student housing segment. As far as meaningful offers, we received on average six offers per each of the three assets and we are currently pursuing best and final offers and in negotiations with folks, as Paul has said.

The reality of it is, as far as what the cap rate is, we won't know that until and if we go to an actual closing because of the process of hammering out and negotiating buy-sell agreements, due diligence, etc. I will tell you this, the market today is not in the 6s we would have loved to have had, and cap rate above the 8s are unacceptable, and so the play is in the 7s.

Karin Ford – KeyBanc Capital Markets

A final question just on the third-party front. Did the two that you started this quarter did they get tax-exempt? Did they get credit enhancement? How were those two financed?

Tom Trubiana

Excellent question. Actually, Indiana University Phase Four, which is the $37 million development, it actually ended up being financed with a 100% construction loan from a consortium of banks that had a relationship with the university, which is pretty novel and thank goodness for that relationship.

And at Colorado State Pueblo Phase Two, and this was actually the case with Phase One as well, it actually is a general obligation of the university, and as I understand it the state, for not only those two projects but other projects as well. So that's how they were able to go forward.

Karin Ford – KeyBanc Capital Markets

So no real light at the end of the tunnel as far as the disruption in that traditional market.

Tom Trubiana

Now, it is starting to turn and I think you're probably aware of a lot of the work we do on the investment banking side and all with Morgan Keegan and we're starting to see some movement as far as a reduction in the cost of the letters of credit and the spreads. And so that's one of the reasons we're more optimistic about Westchester Phase Two today than we would have been say six months ago.

Operator

Our next question comes from Michelle Ko – Bank of America, Merrill Lynch.

Michelle Ko – Bank of America Merrill Lynch

I was wondering if you could just talk a little bit more about which markets had the most supply issues for the '09 and '10 leasing season and if you see those markets still having those same issues for the next leasing season?

Craig Cardwell

Michelle, this is Craig Cardwell. Probably the biggest hit was in Auburn and there was a substantial amount of off campus development and a big sophomore project that was opened up on campus. Frankly that on campus project will help us because at Auburn University generally freshmen lived on campus and sophomores moved off campus, in most cases.

For the sophomores staying on campus this year, they'll be released back to the market next year and we'll get our share. We have a great location in a nice community there so we think we'll be able to move that community back up. Not saying we'll get to 100%, but we feel pretty good about where that asset can go. So we think that they'll be rebuilding there but that was a pretty hard one year hit.

As to I'd say probably the next most difficult market was probably the University of Florida where there was not that much development this year, but development last year that was largely unabsorbed and the University had planned enrollment declines. Now in that particular case we found a way to respond to the market and get our occupancy where we wanted to get it through a combination of strategies and repositioning the property, which included some rate reduction.

But you can see on a year-over-year basis that we really moved the occupancy from 2008 to 2009 up in the face of a very, very difficult market. We expect that in the other markets where we've had the same kind of challenges we'll be able to do the same. But I would say if there is one market that probably got hammered the worst it was probably Auburn.

Michelle Ko – Bank of America Merrill Lynch

Can you shed a little bit more light on bad debt increase this quarter? I was wondering if you could give us more details around that and if you expect that to continue?

Craig Caldwell

Well we think its up a little bit, which is probably not surprising given the state of the economy, but it's not double. So it's not like we're seeing a giant trend that's really, really pushing up through the roof and it's still substantially below what you find reported through the National Apartment Association or what we hear throughout the balance of the multifamily sector, and I guess I'd leave it at that. It's up a little bit and so we reported it, but that's because we've had such good expense containment any little blip we're kind of like making note of.

Operator

Our next question comes from Michael Levy – Macquarie.

Michael Levy – Macquarie Research Equities

Most of my questions are already answered, but can you please elaborate a little bit more on the agency refinancing. That is the rates at which the deal might close, loan to value, etc. And do you have any sense as to when we might see the financing actually be completed? I know it's supposed to be in the next couple of weeks but can you be a bit more narrow than that?

Randy Brown

Michael, this is Randy Brown. As I mentioned in my comments, we are in the latter stages of completing the refinancing. We feel that the all-in blended rate, and by that I mean we're looking at 5, 7, and 10-year tranches to ladder out our maturity so we're not faced with a large refinancing issue or risk out in the future, and we think those all-in rates based on today's treasury rates are in the neighborhood of about 5.6%.

Those are based on the spreads over treasuries that vary between 250 basis points and 275 basis points. So, again, those are based on today's treasuries so we don't anticipate them moving that much by the time we close, but it's still out in the future.

We're looking to hopefully close on the facility towards the end of November. It's taken a little bit longer than we thought just to complete all the third parties, but progress is being made. So I would assume that we'll have that refinancing in place certainly well before the end of the year, as I mentioned.

Michael Levy – Macquarie Research Equities

Switching gears for a second, now that the balance sheet seems to be in a better shape than it was maybe perhaps before the secondary offering. Can you please give an update on whether there's been any sort of bids on new projects that you feel more confident in perhaps?

Tom Trubiana

This is Tom. From an investment standpoint, I guess kind of our rank order of preferences we are now in position to be able to pursue on campus equity deals with states having real financial difficulty and providing funds to institutions. We do indeed find more and more schools as they try to revitalize their student housing looking for alternative sources of financing and one that is clearly being looked at is an on campus equity model where you actually own the improvements, so with the secondary offering we're now able to compete for that business.

And on the acquisition front, we're primarily looking and we have indeed put in some letters of intent. But it's either assets that are in very close proximity to school or turnaround situations where repositioning the asset and with better management we can get higher returns on our investment than we'd get otherwise.

And then I guess thirdly and we actually, nothing that we can announce in detail, but there are two off campus developments that are actually adjacent to Tier 1 institutions where our group along with partners have control of land that we're exploring development opportunities. And those are in areas where there are significant barriers to entry and that you could do something special that would differentiate your product from everything else in the market.

So that's pretty much our investment strategy at this point in time and we have a lot of rods in the fire, as they'd say, but nothing that we could announce at this point in time.

Michael Levy – Macquarie Research Equities

Can I just as a short follow-up on the on campus wholly owned properties, which is really I guess the original intent of my question. Are you finding colleges or universities more receptive to your bids now that the balance sheet seems to be stronger?

Tom Trubiana

Actually I really can't answer that because no school has made a determination since we have the secondary offering, but clearly it is about the financial strength of companies and the abilities to do that. And I mean just by looking at our balance sheet today as compared to three months ago, clearly we're in a much stronger position. I would add because I know there's some questions have been asked about pipeline, etc.

As we speak today, we have submitted or are submitting either RFP's or RFQ's at nine different schools and then we have a pipeline of a total of 27 schools so an additional 18 schools that has expressed an interest that we're ether meeting with them or an RFP or an RFQ is pending. And I would say in general what we're finding is schools are trying to explore all kinds of options, and in most cases they'll say lets look at tax exempt and the private equity and it'll be interesting to see which direction the majority of folks end up going in the long run.

Michael Levy – Macquarie Research Equities

If I can just one more final question and I'll get off, I apologize. In terms of the search for a new CEO, can you give any headway as to whether most of the candidates that you have been interviewing are coming from outside the organization or from inside the organization?

Paul Bower

The answer is there are some of each. There are, obviously, are more outside because there's a bigger universe out there. To this point, we've looked at about 25 individuals. Obviously the majority of them would be outside the company versus inside.

Operator

(Operator Instructions) Our next question comes from Paula Poskon – Robert W. Baird.

Paula Poskon – Robert W. Baird

Craig, can you give us a little bit more color on what you're planning to do differently this year as you head into the beginning of the renewal cycle, and in particular for those properties where you think some repositioning might be necessary. What might repositioning encompass?

Craig Caldwell

Well, repositioning might encompass anything from a range of a different kind of rental rate strategy to the timing of commencing the leasing to a different kind of a capital plan, or any combination of those things. So those are not atypical with what anyone would do with improved real estate, and we may not employ all of those but it could be all or any combination of those.

Some of it has to do with the timing of the introduction of maybe a new leasing plan which might start either a little earlier or in some cases actually a little later when we see what the markets up to. So there's a lot of different ways to kind of peel off the layers of the onion, and we have a very highly specific plan for each of the communities that we want to make some moves with.

Paula Poskon – Robert W. Baird

Then a question for Randy just to follow up on the questions about the balance sheet's ability to support growth. How much more in volume of additional on campus owned projects do you think the balance sheet in its current state could support?

Randy Brown

Well, I mean it's somewhat of a difficult question to answer. It depends on the size of the on campus development. I think you see how much cash we've got and I talked about how much new debt we were going put in with the Fannie Mae facility, which means we're going to use about $50 million of our available cash.

And we've got about 89 on our balance sheet right now, so that would leave us with $30 plus million in available cash. And then I also mentioned that we've got a little over $47 million available on our credit facility. If you look at page 12 of our supplemental, Paula, you'll notice the properties that we currently have unencumbered that we could choose to put into our credit facility and increased availability if need be.

I mentioned the fact that we were going to only encumber eight of the nine current properties that have debt on them, so we're going to free up one additional property that would, again, be available to be put into either a credit facility or the Fannie Mae facility. So right now it just stands we have the liquidity that we need to pursue the on campus transactions that Tom had mentioned and we have the ability to increase that liquidity at the appropriate time, should that be necessary.

Paula Poskon – Robert W. Baird

Then for Paul, just a follow-up on the question about the CEO search. Can you give us some color on among the external versus internal candidates that been vetted, how are the relative skill sets comparing to each other, in particular to what you think is the most important for the new person to bring? In other words, are you seeing the breadths and depths of skill sets that you desire?

Paul Bower

Yes. The simple answer is yes. We're seeing a lot of very talented people. As you can imagine, there are probably more people available today than there would be say a couple of years ago. So we're seeing real estate-savvy market-savvy type individuals to compare to those that are internal that have specific student housing experience.

It's safe to say that the external candidates do not have the depth or breadth of specific student housing experience, but they bring other attributes. So we're just trying to balance all of that and make the most sense out of it. This is a board decision. We really haven't presented any recommendations to the board at this point. So this process has got a couple more months to play out.

Paula Poskon – Robert W. Baird

If you can share this, what does the process look like? Clearly, obviously you've engaged, you've announced you've engaged a search firm to help you with this. So presuming the first vetting goes through them and then what happens?

Paul Bower

Well, there's a board committee assigned to this task and after we go through a initial vetting, the board committee will review those at the top of that list. How many I can't really say at this point, but X number will go for a second round, and then the board will deliberate on the best choice the most logical choice for the company.

Paula Poskon – Robert W. Baird

So I guess my question, just to drill a little bit deeper, is as candidates come through the process, are they meeting with you or the board committee or are you planning to present them kind of all at once?

Paul Bower

Well, none of the candidates at this point, other than the obvious internal candidates who the board knows, have met with this board committee. [Spencer Stewart] and myself have done all the interviewing of the external candidates at this point.

Paula Poskon – Robert W. Baird

Just one last question for you, Paul. If you look at the stock price since that announcement was made through yesterday the stock is up about 13%, but that's clearly underperformed your direct Tier and the broader [RMZ] and the traditional multifamily indices. And even since the crack in the rally, shall we call it, from let's say mid-September when the last industry gathering in Austin happened, the stock was down about 15%, and that again is underperforming. How do you interpret what the market is signaling to you?

Paul Bower

Well, I think we still have some uncertainty out there. We have this financing that's not quite complete. We have the CEO search. We have several items that the market is still saying, let's wait and see how that all plays out. I think that will all settle itself out here in the next couple of months.

Operator

There are no further questions at this time. I will turn it back to management for any closing remarks.

Paul Bower

Well, thank you everyone for participating in our third quarter earnings call today. We have, as I just said, a number of important matters underway that will hopefully successfully conclude in a fairly short-term ahead. We look forward to reviewing those outcomes with you in our next fourth quarter earnings call. Thank you very much and have a nice day.

Operator

Ladies and gentlemen, this concludes the Education Realty Trust Third Quarter 2009 Earnings conference call. This conference will be available for replay after 1:00 pm Eastern Standard Time today through November 5 at midnight. You may access the replay system at any time by dialing 303-590-3030 or 1-800-406-7325 and entering the access code of 416 or 783. Thank you for your participation. You may now disconnect.

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