Education Realty Trust, Inc. Q1 2010 Earnings Call Transcript

Apr.24.10 | About: EdR (EDR)

Education Realty Trust, Inc. (NYSE:EDR)

Q1 2010 Earnings Call Transcript

April 22, 2010 5:00 pm ET

Executives

Brad Cohen -- IR, ICR

Randy Churchey -- President and CEO

Randy Brown -- EVP, CFO, Treasurer and Secretary

Tom Trubiana -- SVP and Chief Investment Officer

Analysts

Michael Levy -- Macquarie

Paula Poskon -- Robert W. Baird

Karin Ford -- KeyBanc

Michelle Ko -- Bank of America-Merrill Lynch

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Education Realty Trust First Quarter 2010 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator instructions) This conference is being recorded today, Thursday, April 22, 2010.

I would now like to turn the conference over to Mr. Brad Cohen with ICR. Please go ahead, sir.

Brad Cohen

Thank you. Good afternoon. 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 pleasure to turn the call over to Randy Churchey, President and Chief Executive Officer. Randy?

Randy Churchey

Good afternoon. Thank you for joining us for the Education Realty Trust First Quarter 2010 Earnings Call. I’m joined by our Chief Financial Officer, Randy Brown, and by our Chief Investment Officer, Tom Trubiana. I hope you had an opportunity to review our press release.

Our first quarter 2010 adjusted FFO per share of $0.14 is consistent with our expectations. Randy Brown will discuss our first quarter results and full year outlook shortly.

I’m generally pleased with our results during the first quarter. We would stay focused on making progress each quarter as we work through the year. In some areas, our progress will be more immediate, and in others, it will take more time to show tangible results.

Our team is simultaneously focused on operating our current portfolio to maximize net operating income, signing new leases for the fall of 2010 term, evaluating our portfolio of capital recycling opportunities, working our industry relationship for new business opportunities, and continuing to conduct intensive reviews of the Company’s business processes.

First, I will speak the property operations. We made reasonable stride in restructuring property operations while still maintaining positive fall 2010 pre-leasing momentum. As part of this process we previously announced leadership changes and some restructuring. For example, we realigned the capital expenditures process through our construction personnel.

This change and other changes that will be made should enable our regional managers and our community managers to focus on their top three priorities, pleasing our customers, generating increases and net operating income, and preleasing for the fall 2010 term.

In addition, we have improved our daily preleasing monitoring report and we will roll out new property level Web site for all loan properties by May 1st. We believe these two along with the other changes we have made will help us proactively manage our leasing activity and attract additional leasing traffic.

As we mentioned in our previous call, many of these changes will not have a substantial impact to the fall 2010 term given that many of these efforts commenced when we are already over 30% preleased. However, we do expect these initiatives to result and improve fall 2011 leasing.

We will be implementing additional initiatives throughout the year so that as we start focusing on fall 2011 leasing these initiatives will be in place and will help enhance the performance of our community.

Next, preleasing. We are in the middle of the fall 2010 leasing term. Due to the differences in school calendars and various universities we currently have signed leases for 100% of our inventory for next fall at some universities while at others we have signed leases for less than 20% of our inventory.

Our same-community preleasing occupancy for the fall 2010 term has increased to 52%, which is 1.2 percentage points ahead of last year at this time. Specifically, the Legacy community signed leases for about 2.3 percentage points behind last year and the Place community signed leases are about 6 percentage points ahead of this time last year.

Same-community net rental rate are approximately 1% ahead relative to last year. As I mentioned this data is based on only 52% preleasing for the fall 2010. Therefore, we do not suggest extrapolations to this data for the full fall 2010 leasing season.

We understand that sentiment and early reads on leasing and other sectors of multifamily are starting to see a turn. But as we previously communicated for our leasing our cycle is truly long, we’re only able to have an impact on the following years results, not the current year’s results.

A few comments about two of our newer communities which are now included as same communities in our fall 2010 preleasing data -- Syracuse and Southern Illinois. Our community at Syracuse opened in August 2009. As you may remember this is an on-campus development owned by EDR under our ONE Plan.

For the fall 2010 leasing term we have signed leases for over 86% of our inventory versus 129% last year at rates over 5% higher. As I mentioned on the last call, we still expect our community at Syracuse to generate unleverage return in this second year, equivalent to our initial underwriting for year two of approximately 8%.

Our community at Southern Illinois University opened 76% leased for last fall. We are currently 52% preleased for fall 2010 versus 34% leased at this time last year at net rental rate a little behind last year.

Now turning to development. Tom Trubiana and his team are continuing their pursuit of new opportunities by partnering with universities for building on-campus for our own account under the ONE Plan. These projects are complex and many times like in the case for our Johns Hopkins third-party development award these potential ONE Plan investments evolve into a straight third party development deal.

It takes a significant amount of time to all community get to a signed agreement and close these transactions. At this stage, we are actively pursuing numerous opportunities both ONE Plan investment and straight third party development deal, but we are unable to predict the timing.

We can say that our development team is extremely busy working a number of potential deals in contrast to the prior year’s flow new development activity. This pick up in development activity is evidenced by our new third party development award at Mansfield University of Pennsylvania that we expect will commence in late 2010.

Additionally, we are making progress with other university partners in finalizing the development documentation and obtaining financing for many of our recently awarded and previously announced third-party development deals. The improved credit markets are one of the primary reasons behind the increased velocity of our development business. Most likely, any new third-party development deals awarded subsequent to today, will commence in 2011.

Let me now discuss the progress we are making as it relates to our capital recycling program. As we discussed last quarter we have agreements to sell two non-core assets, we still cannot provide more information about these assets as the buyers due diligence continues and final closing is still uncertain.

Importantly, our previous letters of intent for these assets are now signed contract. Since the beginning of the year we have spent a lot of time reviewing and reunderwriting the assets we own. That exercise is now substantially complete. The result of this work is that we have determined that we will more than likely retain 60% to 70% of our current beds and dispose off approximately 30% to 40% of our beds) over the next three years to five years.

Our underwriting criteria in evaluating our owned assets is similar to our underwriting criteria for new acquisition. I am not going to speak in detail about our current underwriting criteria, but in general terms, we prefer assets at larger enrolment universities, closer to campus and of a sufficient size.

I want to stress we do not have any pressure to sell these or any assets. All of these targeted assets are providing positive cash flow and we have sufficient financial flexibility to pursue a meaningful number of external growth opportunities without this capital recycling. Assuming market conditions permit, we hope to execute on a disposition plan in a timely fashion.

External growth opportunities are starting to emerge. Previously, we believe that relatively fewer companies would be pursuing opportunities in our real estate sector as compared to the other more crowded real estate sectors. It appears that is no longer the case. We are starting to see a ramp in activity from both buyers and sellers which is expected to drive down cap rate. I hesitate to mention cap rate since unique facts and circumstances impact each assets.

At recent industry conferences numerous market participants mentions cap rate for well located community in the six to low seven ranges. We are well positioned to capitalize upon new acquisition opportunities and we will expand energy and resources pursuing such. But given the relative limited supply of assets meeting our criteria to-date we do not expect many closings in this year.

As I stated earlier this year, our capital allocation decisions must yield improved results over prior years. Even in the current environment it is possible that we will be a net seller of assets in 2010.

We will continue to evaluate opportunities looked at larger assets that will also help bring down the average age of our portfolio. Furthermore, when we add assets we want to make sure that they are well located close to campus and the college of the universities that have a robust activity and where enrolment trends are positive and supply is limited.

We are well aware that this will not be without paying up. But it is one of the reasons we are focusing our efforts on creating and further building our relationships in order to find new maybe off market opportunities both for acquisitions and development.

Lastly, general and administrative expenses. For the quarter they decreased nearly 4% after excluding restructuring severance costs and third-party development deal costs of approximately 300,000 and 200,000 respectively. We believe these deal costs relatively be recovered. Even with this added development deal expense G&A was in line with previously communicated expectations. This is an area that we continue to focus a lot of effort on as we try to become more efficient.

In closing, I want to reiterate that the opportunities are exciting, our team and company are well regarded in the industry and my goal in the coming years is to help us reach our full potential. We do have challenges. And as we work through those and focus executing against the opportunities that emerge I believe that we will translate to meaningful and profitable growth opportunities over the long-term for all stakeholders.

With this overview, I will pass the call on to Randy for some additional discussions of first quarter numbers and our 2010 full year outlook and then we will try to answer some of your questions.

Randy Brown

Thanks, Randy, and good afternoon, everyone. Our first quarter FFO was $0.13 per share. FFO adjusted for the after-tax impact of severance and reorganization costs were $0.14 per share. Same-community NOI for the first quarter declined 4% compared to the same period in 2009, primarily due to a 2% revenue decline. This decline was mainly rate driven.

As discussed in our fourth quarter call in February, we anticipated same-community revenue to be behind last year due to lower occupancies resulting from the fall 2009 leasing results.

We are pleased to note however that the 4% shortfall in revenues sustained in the fourth quarter has narrowed due to better than expected spring leasing efforts and improved lease retention at both our Legacy and Place portfolios.

Looking at pages 7 and 8 of our first quarter supplemental you will see that our Legacy physical occupancy is now slightly higher than this time last year whereas we were approximately 100 basis points behind in the fourth quarter. For the Place portfolio physical occupancy will basically unchanged from the fourth quarter and showed a significant 440 basis points improvement over the first quarter of 2009.

Our vigilance towards cost controls at the property level followed through from the last quarter as first quarter same-community expenses were flat to the same quarter in 2009. In addition to normal payroll inflation we continue to experience costs related to utility expenses. However, we have mitigated some of these increases by negotiating lower internet pricing successfully contesting real estate assessments in certain markets and reaping lower insurance premiums.

Our balance sheet and capital structure continues to be in very good position for 2010 with approximately $28 million in available cash and an unused credit facility. Combined, these provide us with the flexibility to react quickly as growth opportunities arise. Our first quarter interest coverage ratio was a solid 2.1 and our debt to gross assets was 43% which is well below the multi-family sector average of 51%.

At March 31, over 93% of our debt is either fixed or capped with average interest rate of 5.3%. We have no more mortgage debt maturing until 2012. We have approximately 29 million in construction loans maturing over the next 18 months, all with two year extension options which we plan to exercise.

As Randy discussed we are also implementing a capital recycling strategy selling non-strategic assets as the market conditions permit which will allow us to potentially delever more and further improve our financial flexibility.

Now, turning to the 2010 guidance. We are reaffirming our prior guidance of FFO adjusted to be in the range to $0.34 to $0.40 per share. This estimate is based in part on the following assumptions. For our same-community portfolio we estimate revenues will be flat to 2% lower, operating expenses will rise 1% to 2.5% and our full year 2010 NOI will be 2% to 7% lower than 2009.

And though our first quarter physical occupancies are ahead of our expectations and our current preleasing is slightly ahead of last year we are not at a point yet to change our operating guidance given that our portfolio is only 52% preleased at this time. We continue to expect our 2010 third-party development fees to be approximately $1.2 million.

As Randy mentioned we are very active in pursuing development opportunities. We expect to win our fair share of deals and see progress in the financing efforts of our awarded development contracts. However, we remain cautious in revising our guidance in this area until such financing is finalized.

We continue to believe third-party management fees will be approximately $3 billion for the year. In the area of general and administrative expenses we reaffirm our previous range of $15 million to $15.7 million which does not include the impact of any severance or restructuring charges. As Randy mentioned earlier, we recorded approximately $300,000 in previous severance expense during the first quarter. We also anticipate incurring another $200,000 of severance expenses in the second quarter.

Lastly, our guidance does not include the impact of any capital transactions, ONE Plan developments, asset sales or acquisitions or a new third-party development or management contracts.

With that I will now turn it back to Randy Churchey.

Randy Churchey

Before taking questions let me summarize. In the first four months I believe we made good progress. One, we continue to restructure our property operations while maintaining positive momentum for fall 2010 preleasing. Two, we have been awarded another new third-party development contract this time at Mansfield University of Pennsylvania. Three, other recently awarded third-party development contracts are advancing to construction. Fourth, two previously disclosed assets fail letter of intent for two communities who have progressed to signed contracts. And last, we reduced corporate general and administrative expenses by nearly 4%.

Operator, let us open up the line for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Michael Levy with Macquarie. Please go ahead.

Michael Levy – Macquarie

Thanks. Good afternoon. I was wondering if you could tell me on the leasing front, are rents higher as a result of the better environment or because of changes that have been made since any of the new initiatives may have been put in place.

Randy Churchey

Hey, Michael. I think it’s mainly the environment. As I mentioned earlier, we’ve made a variety of changes in our property operations, led by Christine Richards and I always been (inaudible) say that those changes will go into manifest themselves and to improve rate this year. So I think that is still true, I mean, we have made marginal impact, but as you know, we said in our prepared remarks our rates are up just marginally. So to try to figure out how much has to with the changes we made versus market conditions I think it will be a wasted effort, it’s probably a little bit above.

Michael Levy – Macquarie

Okay. That's helpful. And also I understand why preleasing is up in the Place portfolio. Can you possibly discuss why preleasing had declined in some of the larger Legacy assets like Clemson, well, the Reserve at Clemson and University Towers, to name a couple?

Randy Churchey

Sure. As you know, Mike, I have really hesitated to speak to individual assets but I really think from a competitive standpoint it’s not what I should do. But in the past I have spoken to some of our Arizona assets, a few of our Place assets, and I will make a couple comments.

First, in grand total, as you stated leasing this year versus last year is about to push. Obviously, we have a number of assets that are ahead of last year and we also have a number of assets that are behind last year. The reasons why we are ahead or behind are typically the same, right. Either you had increased or decreased enrolment, new supply or lack of new supply and so forth. Most of the properties that are behind I really think their timing and it’s not something that we’re overly concerned about, a little nervous of course, but not overly concerned.

But one I will mention in particular is College Grove at Middle Tennessee State University. This year we are 20% preleased, last year this time we were 43% preleased. And last year we had in the beginning of the year occupancy is 91%. We’re behind in leasing there due to our own problems. We’ve let this property deteriorate from maintenance and cleanliness standpoint. Our property no longer has a great reputation.

We’ve made a number of changes but I doubt we’re going to be able to sufficiently recover this year. I hope we will be able to achieve 90% of occupancy and I hope that will be at reasonable rate. But this is one out of the properties that you see where we’re behind. We’ve done it to ourselves. And I’m not expecting it to fully recover. The other market like I said before I’m nervous, because I should be, but I’m not overly concerned.

Michael Levy – Macquarie

Okay, that's helpful. And then just one final question. I think you said that you had heard at conferences or it was said at conferences that student housing properties were trading in the 6% to 7% range. I believe that’s higher than what you had indicated previously. Would you be comfortable being a buyer at those cap rates?

Randy Churchey

Mike, as you know, each asset is going to have unique facts and circumstances. What we did here at the conference and maybe I said it a little bit wrong in my prepared remarks we were told that the discussions were in the six to low cap rate range. As you know, there’s not many assets that have traded hands in the past year and a half and not much this year so far. When we look at acquisitions, as you know, we look at the long-term internal rate of return, we’ll get from those assets. So could I be a participant at cap rates in that range? Possibly.

Michael Levy – Macquarie

Okay, thank you very much.

Randy Churchey

Thank you, Michael.

Operator

Our next question is from the line of Paula Poskon with Robert W. Baird. Please go ahead

Paula Poskon -- Robert W. Baird

Thanks very much. Good afternoon, everyone.

Randy Churchey

Good afternoon.

Paula Poskon --Robert W. Baird

A couple of housekeeping questions first. Where is food service and (inaudible) booked?

Randy Churchey

We decided to group that in the top revenue line item because the number was so small that we didn’t think it was meaningful.

Paula Poskon -- Robert W. Baird

Okay, thanks. And as of what date is the preleasing data?

Randy Churchey

We apologize for leaving that off. It was an oversight. It’s last week April 12.

Paula Poskon -- Robert W. Baird

Great, thank you.

Randy Brown

That’s been updated/revised on our supplements on our Web site now, Paula.

Paula Poskon -- Robert W. Baird

Thanks, Randy. And what was the amount of severance charges recognized in the first quarter?

Randy Churchey

Just under 300,000 gross.

Paula Poskon -- Robert W. Baird

And do you expect to recognize more throughout the year?

Randy Churchey

I think in Randy’s prepared remarks he said we expect another 200,000 gross in the second quarter.

Paula Poskon -- Robert W. Baird

Thank you. .I am sorry I missed that.

Randy Churchey

That’s all right. And just going forward is as we said on the call we continue to evaluate our business processes and so forth. So it’s possible there will be additional charges and fees.

Paula Poskon -- Robert W. Baird

Okay. And then coming back to the portfolio, in particular, Randy, on your prepared remarks, could you talk or provide a little bit more color on what's happening up at Southern Illinois University? As you know there was a cover story in the Chronicle of Higher Ed, that wasn't particularly flattering around the financial situation up there. So I'd just like to get your thoughts on that.

Randy Churchey

Sure. As you know, Southern Illinois has enrolment of about 20,000 students. So I guess I read that article, I guess with an enrolment of 20,000 students alarm is much as what the article said. But today, where we are, our beginning of the occupancy was 76%, we’re currently 52% preleased versus 34% last year. Rates are down. And the University has had a 5% enrolment decline over the last five years and most people think that will continue. So the rate is under pressure.

Specific to the article, obviously, everyone is well aware of the economic environment, the challenges that universities are facing. Many states are looking for solutions to bridge the revenue and funding shortfall the university system. We’ve reviewed what’s going on in our markets, obviously, we have no control over what’s happened with the state university budgets, but regarding this article, again, it’s university with 20,000 student enrolment, I don’t think it’s going anywhere in the history of colleges, colleges of that size, usually don’t change very much over time.

Paula Poskon -- Robert W. Baird

Okay. And then kind of sticking with that bigger picture stuff, as you are talking to universities, do they feel like the worst is behind them or do they still feel like they’ve got a long road ahead around their financial situation?

Tom Trubiana

Paula, this is Tom Trubiana.

Paula Poskon -- Robert W. Baird

Hey, Tom.

Tom Trubiana

In most cases, there’s still significant financial pressures. I don’t think the allocation from the states has changed much over the last year than so as we pursue private/public partnerships we’re seeing more and more schools looking for the potential of a private equity solution and great concern about any kind of impact to their balance sheet. I candidly don’t see that there has been much relief on that front at this point in time.

Paula Poskon -- Robert W. Baird

That’s helpful, thanks, Tom. And then just one last question. As you’re going through, Randy, the leasing season, what are you hearing from students and parents around their economic situation?

Randy Churchey

It’s surprising to me that we’re really not hearing a whole lot different than what is normally. I think you recall from last year’s calls, which of course, I went on, our sense was that while there is financial pressures, people are still spending for all campus housing for their kids and it really hasn’t significantly changed. Now, they all read in the papers that they all be getting better rates so they negotiate with us on rates. But for the most part the sentiment is pretty much the same.

Paula Poskon -- Robert W. Baird

Okay, thanks, I will jump back in the queue. Thank you, guys.

Randy Churchey

Thanks.

Operator

Our next question is from the line of Karin Ford with KeyBanc. Please go ahead.

Karin Ford -- KeyBanc

Hi, good afternoon. A similar question to one asked earlier. The mid semester occupancy improvement due to some spring leasing you did and improved retention in January. Is that fairly unique? Have you guys seen that before? And is that an indication of improving environment or improving operations or both?

Randy Churchey

It is unique for us. And that we typically in the path not had a concerted spring leasing effort that has yielded the tangible results that you’re seeing today. So for us it is unique. For others I’m not sure. We’ll of course do that again next year at select schools, again, we’re still trying to lease for the entire 12 months, but at some schools the way their schools have been trained I guess there is less leasing for the ability to do that’s bring spring leasing that we did this year, we’ll probably do it again at some schools.

Karin Ford -- KeyBanc

That’s helpful. A numbers question. I know you said the same-store portfolio changed from 4Q to 1Q due to the inclusion of those two additional properties. Can you just give us an apples-to-apples comparison? You were 120 basis points ahead as of 4Q and then 120 basis points ahead as of 1Q from a preleasing perspective. Do you know what it is on an apples-to-apples comparison, either including or excluding those two properties?

Randy Churchey

Karin, I don’t have that in front of me, but it’s not significant, as you can see the number of leases that go into the grand totals on the page you’re looking at is 770 [ph] on 13,000.

Karin Ford -- KeyBanc

Got it. Okay.

Randy Churchey

Sorry, it’s not (inaudible).

Karin Ford -- KeyBanc

(inaudible) Okay. A question on the acquisition environment. You said you’re seeing a lot more competition, a lot more buyers. Who are they and what types of products are they looking for?

Tom Trubiana

Karin, this is Tom. A lot of this is coming from the interface conference that was in New York and RealShare that was in Dallas, just this past week. And I guess I’d say the whole move that related to student housing whether that was developers who now find the ability to get construction financing, where Freddie and Fannie’s loosening up their credit standards, I don’t want to call the story, but there’s been a real mood swing over, I’d say, in the last three months. I don’t think any of that really has manifested itself, because there’s still hasn’t been that much product that has come to market and so when you go to these conferences, talk is cheap and we’ll find out where things end up that clearly, there was a change in terms from say a year ago.

Karin Ford -- KeyBanc

And I know, Randy, you had talked in the past about talking to developers who may have a project close to completion and needed permanent financing or maybe special services as target for potential acquisitions. Are you seeing competition on both those fronts, to that more competition today?

Randy Churchey

Karin, as you know we are trying to develop a proprietary deal flow, if you will, both from an acquisition and a possible third-party development or co-development standpoint. And we’re gaining traction. We have received numerous sponsors backed our increase and we’re trying to work close. I hesitate to go into great details I think it might be something that that’s a competitive advantage. Really, what we’re talking about earlier regarding the cap rates and so forth, again, as like Tom said, it’s talk a conferences, talk brokers and so forth, we’re seeing increased activity. I’m really not seeing people increasing their activity or trying to do what you alluded to and what I have alluded to. I don’t want to talk about too much I guess.

Karin Ford -- KeyBanc

Final question is just on the asset sales, the 30% to 40% you might want to sell over the next five years. You mentioned that you’re going to start that process as soon as market conditions permit. What type of market conditions do you want to see before you get started there?

Randy Churchey

Karin, as evidence of that we really already started we do have two projects that are on the contract, so we really started the process, trying to evaluate the market to see what the appetite might be for asset that we might want to dispose off, but in general, you didn’t ask this question specifically, but I’m glad to add this information. We talked about the Place portfolio in the past.

And when we go through our current underwriting for acquisition, while not absolute that criteria really pretty much precludes us buying similar asset to many of the assets in the Place portfolio. So when we talk about market conditions permitting what we’re really saying, I guess we need to have a little bit is if we think we can sell assets like that in a robust market that would be market conditions permitting. Today, that’s really not the case yet even though there’s a lot of talk, but it might be soon.

Karin Ford -- KeyBanc

And you’re also waiting to get the operational improvements in place as well?

Randy Churchey

As you know the timing of exactly when you sell something is unique to the assets, sometimes you can sell stuff at a better price than what you might think in the future so getting the optimal return or optimal operation of that asset may not make sense. It will be sum of both I would assume.

Karin Ford -- KeyBanc

Fair enough, thank you.

Operator

(Operator instructions). Our next question is from the line of Michelle Ko with Bank of America-Merrill Lynch. Please go ahead

Michelle Ko -- Bank of America-Merrill Lynch

Hi. I just wanted to get back to your preleasing stats on the Legacy portfolio. For some of those assets that were lagging a bit, are there any particular markets that you thought were lagging? Because it seems like some of the particular assets that were lagging, some of them were in Florida and Tennessee. I was just wondering if those markets had anything specific to them that, that could be a factor.

Randy Churchey

Michelle, while we talk about Florida in the past they’ve capped their enrolment and there’s so much new supply at the University of Florida that’s going to take time to absorb that supply and, of course, the negative enrolment hurts that effort. So we’ve talked about that in the past. Actually, I mentioned Middle Tennessee State earlier where we’ve been the problem, if you will.

The rest of the markets, again, it’s to me it’s not colleges or state as much as it is location at those colleges, for instance, if you look at our two properties in Florida State, Players Club in the Commons, you will see players club is a 11% ahead in preleasing at a 82%, but the Commons is around a 11% behind, it’s 23%. So that’s a great example of it’s just not the colleges, it’s the location at a particular college.

Michelle Ko -- Bank of America-Merrill Lynch

Okay, great. And then you’ve talked about recycling capital, potential acquisitions and then, of course, there’s the ONE Plan on campus developments. I was just wondering if you could tell us over the next few years where you think more of the growth is going to come from, will it be internal or will it be external? And amongst the external do you think it will come more from acquisitions or more from the ONE Plan?

Randy Churchey

Sure. Tom will talk about the ONE Plan in a minute. But what I believe is going to occur and I think I alluded to somewhat in my prepared remarks the ONE Plan deal taken enormous amount of time, working with our university partners and so forth. And we’re actively pursuing a number of ONE Plan investments and I hope we will be very, very successful in growing the company that way.

But when I sit back and think where we’re going to be five years from now and how we’re going to allocate our capital, I still believe that a large majority of that capital allocation over the next five years, say,60% to 70%, 75% is going to be in acquisition versus ONE Plan development. But again, I somewhat hope I’m wrong, I hope that ONE Plan takes over because we really think that is a fantastic use of stockholders capital. And just to give you a little more sense on ONE Plan, Tom?

Tom Trubiana

Yes, sure enough. Vast majority of RFPs and we’re actually seeing increased activity. So the demand for university to be revitalized their housing certainly, is not diminished. In most cases, we’re being asked to look at it both from doing a tax exempt financing or in our case the ONE Plan in equity model. And from a university’s vantage point really comes down to the level of important stay put and to reserving their debt capacity, because if we’re putting up our equity, the university loses some control over managing the facility, rental rates, etc., and generally speaking, those less cash flow.

So, really, the real driver to the ONE Plan or equity models there are schools really trying to protect that very precious limited debt capacity they have for other university purposes. I agree with Randy that verdict is kind of out and that clearly schools are more and more to looking at it. And this will depend upon what happens to the capital markets and state funding that becomes available in the future. But clearly, it’s a place we would like to be. We’re seeing this much easier when you are the university’s housing.

Randy Brown

Randy, you mentioned a little bit about the movies, the paper.

Randy Churchey

Movies put out annually, they put out a position paper and they just put one out at the end of March and a number of folks who ask questions related to what are the impacts of it. Actually, in this most recent March report, they largely confirm what they’ve been saying over the last four years or five years and that is that each and every public/private partnership is different and any university credit impact it will vary based upon the specific project characteristics.

So the key takeaways for us on these most recent movies report is that they have eliminated the concept of indirect debt, is basically what was the school had no real legal obligation and we actually see that as a positive for our on-campus equity program, the ONE Plan, because the concept of indirect debt has been most directly related and tied to tax exempt financial structures.

The second key point is and this came were from verbal conversations with the folks from annuities that clearly on-campus project that are financed with the significant amount of equity from a strong financial partner that those projects will be viewed more favorably than projects that are 100% financed, because of the reduced probability that the university would have to somehow financially support the project. So, that’s our take on that and that those of you that have any chance of, Moody’s report is out there, and you may want to refer to it for additional information. We see it as a positive.

Michelle Ko -- Bank of America-Merrill Lynch

Great, thanks so much, that’s very helpful.

Randy Churchey

You’re welcome.

Tom Trubiana

Thanks, Michelle.

Operator

Mr. Churchey, I see there are no further questions at this time. Please continue with any closing remarks.

Randy Churchey

Right, thank you. Well, everyone, thank you for your interest in our Company and we look forward to updating you on our progress in a few months. Thank you.

Operator

Ladies and gentlemen, this concludes Education Realty Trust Conference Call. Thank you for your participation and you may now disconnect.

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