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American Campus Communities, Inc. (NYSE:ACC)

Q1 2014 Earnings Conference Call

April 23, 2014 11:00 ET

Executives

Ryan Dennison – VP, Corporate Finance & IR

Bill Bayless – CEO

Greg Dowell – COO

James Wilhelm – EVP, Public-Private Transactions

William Talbot – Chief Investment Officer & EVP

John Graf – EVP, CFO, Treasurer

Daniel Perry – EVP, Capital Markets

Analysts

Derek Bower – ISI Group

Ryan Meliker – MLV & Co

Paula Poskon – Robert W. Baird

Dave Bragg – Green Street Advisors

Nick Joseph – Citigroup

Michael Bilerman – Citigroup

Alexander Goldfarb – Sandler O'Neill

Jeffrey Powell – Goldman Sachs

Jana Galan – Bank of America Merrill Lynch

Karin Ford – KeyBanc Capital Markets

Jordan Sadler – KeyBanc Capital Markets

Carol Kemple – Hilliard Lyons

Vincent Chao – Deutsche Bank

Operator

Good morning and welcome to the American Campus Communities First Quarter 2014 Financial Results Conference Call. (Operator Instructions). I would now like to turn the conference over to Ryan Dennison, Vice President of Corporate Finance and Investors Relations. Please go ahead.

Ryan Dennison

Thank you. Good morning and thank you for joining the American Campus Communities 2013 first quarter conference call. The press release is furnished on Form 8-K to provide access to the widest possible audience. In the release, the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg G requirements.

If you do not have a copy of the release, it's available on the company's website at americancampus.com in the Investor Relations section under Press Releases. Also posted on the company website in the Investor Relations section, you'll find a supplemental financial package. We're also hosting a live webcast for today's call, which you can access on the website with the replay available for one month. Our supplemental analyst package and our webcast presentation are one and the same. Webcast slides may be advanced by you to facilitate following along.

Management will be making forward-looking statements today, as referenced in the disclosure in the press release, in the supplemental financial package and in SEC filings. Management would like to inform you that certain statements made during this conference call, which are not historical fact, may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995.

Although the company believes the expectations reflected in any forward-looking statement are based on reasonable assumptions, they are subject to economic risks and uncertainties. The company can provide no assurance that its expectations will be achieved, and actual results may vary.

Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time, in the company's periodic filings with the SEC. The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release.

Having said all that, I would now like to turn the call over to Bill Bayless, Chief Executive Officer, for his opening remarks. Bill?

Bill Bayless

Thank you Ryan. Good morning and thank all of you for joining us we discuss our Q1, 2014 results. As you saw on the press release last night it was an excellent quarter in advancing our 2014 initiatives related to expense control and asset management, advancing our full 2014 lease up in an effort to maximize revenue growth moving into 2015 and in expanding our development opportunities with focus on self-funding development the ongoing dispositions. With that we will go ahead and jump right in and I will turn it over to Greg Dowell, our COO, to discuss our operational results, to provide a leasing update and to discuss our progress on controlling expenses.

Greg Dowell

Thanks Bill. We’re pleased to announce that 2014 is off to a solid start, quarterly FFOM has increased by 3.7%, leasing velocity continues to be on a pace that’s consistent with our longer term historical trends and our cost savings initiatives and asset management initiatives are delivering results. If you turn to page 5 in the supplemental package you will see that the first quarter same store NOI decreased by 0.9% over Q1 of 2013. This was the result of a 0.6% increase in revenue while operating expenses increased by 2.6%.

As we mentioned in our press release this increase in expenses is primarily due to the unusually long and cold winter that drove utility expenses to increase $1.8 million or 10.9%. Excluding this extraordinary weather related expense increase same store expenses would actually have experienced a decrease of 0.1%. As you can see on page 7 of the supplemental March 31, 2014 occupancy at our same store wholly owned properties was 96.8% compared to 96.6% for the same date in the prior year.

As of March 31, occupancy for the total wholly owned portfolio was 96.9%. If you turn to page 8, we can review the leasing status for the 2014-2015 academic year.

As on slide 8, April 18, our Q4 same store wholly owned portfolio was 82.1% applied for and 74.1% leased. This compares to 74.8% applied for and 68.2% leased for the same date in the prior year. While we’re exceptionally pleased with our leasing velocity we would like to emphasize that given that our industry leading final fall 2013 lease of 96.7% it's preleasing velocity will naturally diminish as we continue through the end of the leasing season.

We're currently projecting an overall rental rate increases of 2.1% for the same store portfolio. In addition, we are pleased with the progress related to the initial lease up of our 2014 development deliveries. If you turn to page 13 of the supplemental, you will see that these properties are 91.8% preleased for the upcoming academic year with four assets preleased to 99% and above demonstrating our attractive initial rental rates and perceived value that should result in long-term NOI growth.

We are especially pleased that this 590 basis point gain in leasing velocity over last year was achieved with a normalized Q1 marketing spend. Our same-store marketing spend in Q1 of 2014 was $43 per bed as compared to $53 per bed in Q1 of 2013 which resulted in a same-store savings of $843,000 over the prior year.

Our total portfolio marketing spend was $42 per bed. Our historical Q1 total portfolio marketing spend from 2010 to 2012 was in the range of $40 to $45 per bed. With these results, we are well-positioned to meet or beat our 2014 budgeted marketing spend of $187 per bed at our same store properties and $183 per bed at our total portfolio

On our last call we identified approximately $5 million in targeted expense reductions for 2014. In addition to the $843,000 in marketing savings we were able to also save an additional 1.3 in integration and maintenance costs this quarter resulting in 2.1 million in savings toward our $5 million goal after just one quarter.

Additionally I would like to express our appreciation to the ACC team for delivering on these cost-saving initiatives, for strong lease up and delivering an overall solid quarter. With that I will turn it over to Jamie to discuss our on campus development activities.

James Wilhelm

Thanks Greg and good morning. During the quarter our on campus team continued to focus on delivering our current developments, conducting development activities relating to existing transactions, qualify new on campus ACE investment opportunities, and pursuing new third-party fee development engagements.

As you can see on page 14 of the supplemental, our fall 2014 and 2015 ACE delivery pipeline remains on schedule. Our own on campus projects at Northern Arizona University, Drexel University, Texas A&M and both phases of our faculty and staff project at Princeton University account for 3021 beds and a combined ACE investment of $305.8 million.

With regard to our proposed 460 bed ACE investment on the University of Southern California, Health Sciences Campus we’re pleased to have substantially completed the necessary City of Los Angeles Entitlement process. Pre-development activities are ongoing and after we complete final transaction negotiations with USC, the timing for the commencement of construction, anticipated delivery and development budget will be finalized.

Continuing with our on campus third-party fee developments, our project at Princeton University and West Virginia University are proceeding for fall 2014 deliveries. With regard to our fall 2015 deliveries our 495 bed honors Residence Hall at the University of Toledo and our 500 bed at Texas A&M University Corpus Christi apartment community remain on track to commence construction in the second quarter of 2014 for a fall of 2015 delivery.

Subsequent to quarter end and after a highly competitive national procurement process that included flagship institution, on campus project tours, the company was named by Butler University in Indianapolis, Indiana as the University’s development partner for 1200 to 1500 bed on-campus student housing initiative.

The first phase of the project is estimated to be approximately 500 beds targeted for a fall 2016 delivery. Financing and ownership structures are currently being evaluated by the University and ACC. And finally also subsequent to quarter end, the company executed an interim services agreement with Northern Arizona University for the development, construction of an estimated 85,000 square foot on campus student and academic services building.

The new facility will be occupied by faculty offices and use a mathematics lab in a one stop student services center. We expect to commence construction in late 2014. The full scope of the project, final schedule, development fees et cetera will be determined over the coming months.

We continue to experience strong demand for university public-private partnerships and are optimistic we will be able to grow our on campus development pipeline. The pipeline for both ACE and third-party fee developments at universities remains very robust. We are currently involved in 11 university procurements and attracting more than two dozen additional on campus opportunities. Having summarized their on campus activities I would like to turn the presentation over to William to discuss our overall investment activity.

William Talbot

Thanks Jamie. For the first quarter of 2014 we continue to focus on the execution of our own development and mezzanine presale opportunities funded by effective recycling of capital through strategic dispositions. Our total owned developments for fall 2014 and fall 2015 including the ACE developments that Jamie previously mentioned and our mezzanine presale in Tennessee now total 11 projects, 7140 beds and over 618 million in development.

All these properties are brand new, core Class A pedestrian assets serving Tier I universities with an average distance of 1/10th of a mile to each respective university and offering attractive rental rates within each individual market, consistent with our build for the masses and not the classes investment strategy.

For fall 2014 we continue to make progress on our five owned on and off-campus deliveries that total 3047 beds and $230 million in total development cost and we continue to reject a stabilized nominal yield of 7%. In addition our $32 million mezzanine presale development serving the University of Tennessee is also making progress for fall 2014 opening.

All of these core pedestrian owned developments offer significant rental rate value in their respective markets are 92% leased for the upcoming lease year with four of those projects projected leased four of those projects leased at 99% or higher.

For fall 2015 we have begun construction on a new core pedestrian development serving the students of Auburn University, 160 Ross is a previously unannounced 642 bed, $41 off-campus development that is walking distance to the classrooms, students corner and student night life and retail.

The project will feature highly attractive four plans at a competitive rental rate along with a large fitness center, game room, study lounge and resort style pool. The project also includes a 681 space attached parking garage with the addition of 160 Ross our announced fall 2015 owned eight and off campus developments now consist of five projects totaling 3567 beds and 356 million in development.

With regards to strategic dispositions, we're on track for the previously announced 100 million to 200 million in deposition guidance to occur in the fourth quarter and anticipate releasing both single and portfolio packages in late May early June once leasing has become more realized for the fall. We will update the market as we make progress in that area.

Let’s now turn to acquisitions and private market valuations within the student housing sector. Based on data compiled by CB Richard Ellis, 22 transactions closed during the first quarter of 2014 consistent with the first quarter for the past three years which ran from 19 to 25 transactions. In discussions with leading brokers including CBRE Holliday Fenoglio Fowler and Institutional Property Advisors as well as owners in the sector valuations and pricing for recently closed transactions as well as current offers for properties on the market is as follows. Pricing for core pedestrian product in Tier I markets is still commanding 5% to 5.5% cap rates while drive properties in Tier 1 markets are in the 6% to mid-6% range and assets in tertiary markets are in the 7% or higher range.

These remain consistent with recent historical levels and we expect these valuations to continue through 2014. The brokers consistently communicated that overall transaction volume for 2014 is expected to be on pace or above last year’s volume of 2.9 billion of which the reach only accounted for 8% of total transactions. We continue to see strong interest from new institutional capital to investment sector and overall demand and volume remained strong despite the reach currently sitting on the sidelines.

With that I will now turn it over to John to discuss our financial results.

John Graf

Thanks William. For the first quarter of 2014 we reported total FFOM of 70.9 million or $0.66 for fully diluted share which met our internal expectations and was within our 2014 guidance assumptions. This compares to FFOM of 68.4 million or $0.64 for fully diluted share for the comparable quarter in 2013. As compared to the first quarter of 2013 the 2014 first quarter results benefited from the previously discussed expense control and asset management efforts and the ‘13 growth properties placed into service during 2013.

This was partially offset by interest expense related to our 400 million senior unsecured notes issued in April of 2013. Additionally as a result of the timing of six dispositions during 2013. FFOM contribution from these properties was $3.3 million less this quarter as compared to 2013.

Corporate G&A for the first quarter was in line with internal expectations at 4.4 million. We continue to be expect to be within the previously provided guidance of 18 million to 18.8 million for 2014. G&A is anticipated to be slightly higher in future quarters due to the timing of restricted stock or amortization or compensation earned in connection with their reelection at the upcoming Annual Shareholder Meeting and increases in healthcare cost.

As of March 31, 2014 the company’s debt to total asset value was 43.7% and the net debt to run-rate EBITDA was 7.5 times. During the quarter we paid off 84 million of maturing fixed rate debt leaving us with 211 million of debt maturities for 2014 or 7.6% of the company’s total indebtedness. Of the remaining 2014 maturities 45 million variable rates construction loan at LIBOR plus 1.45% contains two, one year extension options which we currently qualify for and plant to exercise.

Management believes the remaining capacity on our credit facility along with cash generated from operations and property dispositions and the ability to raise funds in the unsecured bond market provides ample capital for our wholly owned development projects being delivered in 2014 and 2015. As of quarter end we had approximately 3.6 billion and unencumbered asset value which was over 58% as the company’s total asset value.

Our total interest expense for the quarter excluding 1.1 million from the on campus participating properties was 19.9 million compared to 60 million in the first quarter of 2013. And the company’s cash interest coverage ratio for the last 12 months was 3.5 times.

Interest expense for the current quarter includes 3.8 million related to our unsecured notes issued in April of 2013. Additionally interest expenses is net of approximately 3.2 million and debt premium amortization and 2 million in capitalized interest related to owned projects and development.

Turning now to 2014 guidance, we’re maintaining our previously stated FFOM guidance range of $2.27 to $2.35 for fully diluted share. For the balance of the year the most significant factors that will impact where we will be within this FFOM guidance range are as follows. For property NOI we previously communicated total owned property NOI of 356.6 million to 362.6 million which includes the impact of NOI from property Class 5 and discontinued operations and property dispositions.

The NOI ultimately produced for the year will be contention upon final occupancy and rental rates obtained for 2014, 2015 lease up managing no shows, managing operating expenses including turn cost at anticipated levels, final property tax assessment and disposition activity.

With regard to dispositions the low end of the NOI range assumes 200 million and the high end assumes 100 million of property dispositions. Dispositions are assume to occur in the fourth quarter of 2014 and excludes the recently completed sale of Hawks Landing. For interest expense excluding the on campus participating properties we communicated a range of 87.6 million to 89.9 million net of capitalized interest.

Interest expense range is primarily dependent on both the timing and size of dispositions and the timing of an anticipated mid-year unsecured bond offering. Concern of earning third-party services revenue the fee range is primarily dependent on the finalization of documents in commencement of construction. Our current assumptions for the Toledo Texas A&M Corpus Christi and NAU [ph] projects are outlined on page 15 of the supplemental.

With that I will turn it back to Bill.

Bill Bayless

Thank you John. While this is the first quarter of 2014 we’re obviously two quarters into the current academic year and as you all know now Q4 and Q1 have met the markets expectation and demonstrated excellent success in our initiatives. With that said, we hope that we are demonstrating that the fundamentals of the industry continue to be strong and the American Campus operating platform continues to be the best in the sector.

For those of you that had attended the Student Housing Conference in Austin several weeks ago we all learned together that the industry had significant tailwinds at this time, and as the larger private companies as EDR and a ACC are experiencing are also having lease ups that are outpacing last year with everyone having good rental rate growth

We also continue to see that supply is not having a negative impact on core pedestrian assets in Tier I markets as we continue to be in the early stages of modernization in this industry that must take place and as William commented in recent discussions I think as earlier as recent as this week the brokerage community in our sector continues to tell us that valuations and cap rates for core pedestrian assets in Tier I markets continues to be between 5 and 5.5.

With that we will go ahead and open it for up Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). The first question will come from Derek Bower of ISI Group. Please go ahead.

Derek Bower – ISI Group

Could you discuss the timing and your expected hit rate on the 11 university procurements for on campus deals that you mentioned and how do they compare in size to the Butler transaction you just announced?

James Wilhelm

We have got a whole variety of different procurement of those 11, for example, approximately 5 you would read the procurement would be more inclined to be third-party deliveries. Of those two of them have more of an ACE direction and then the balance of them are largely to be determined, in many cases just like Butler we’re hired based upon our request for qualifications and then we work closely in partnership with the institution to determine structure, size and scope.

So when we look at those particular 11 some of those it will take two weeks to two months to name a partner, in others it may be an RFQ, to an RFP to final design. So just name and scope and size and time all of that at this point would difficult.

Bill Bayless

I would say your likelihood to putting the concept of how you all may think of modeling. 11 procurements is taking place right now and most likely the earliest to be 2016 opening, we certainly you know it will be very rare to see anything impact 2015.

Derek Bower – ISI Group

And then how are you thinking about long term responding [ph] or development pipeline after the bond offering. I think your approaching many NAV estimates, so how do you weigh dispositions beyond, what’s in guidance and a potential ATM issuance.

John Graf

Certainly we’re very focused as you all know on the investment in the development pipeline and look at the recycling of our capital through dispositions in that level that we have always talked about between 100 million to 250 million in a year in funding that. Obviously to the extent that we want to have any growth beyond that, first and foremost we always want to preserve capacity for our development opportunities and especially our on campus program and that is number one priority of the organization.

As it relates to any additional growth opportunities certainly we’re not in the game at this moment as we have said, we’re not looking at any larger the portfolio acquisitions that are out there, therefore no need for any type of funding of the nature for that.

As it relates to slower growth one-off acquisition opportunities, we're going to look at the ability to ramp up dispositions being the size that we’re we have a significant competitive advantage in the industry and that we have a large pool of asset base that we can recycle capital for the foreseeable future and into long period of time to do so and as it relates to looking at the other alternatives, we will always be prude managers of our balance sheet. Certainly we’re not going to go out and issue equity below NAV.

When the stock gets to a point that we’re above NAV then certainly the ATM is another alternative for us to consider in managing the leverage.

Derek Bower – ISI Group

And then the package is that, it sounds like you’re going to be putting out a NAV, just given the strength of cap rates you continue to sort of emphasize in your prepared remarks. I mean are you leaning towards maybe selling some more core assets that have a low-5 handle cap rate valuation?

Bill Bayless

We always go through the valuation based on what the future NOI growth stream of the assets that we’re selling. By definition, those core pedestrian assets tend to have the best growth rate and so typically they're not the first candidates. However, there is -- one of the markets that William if we drill down on, a lot of the value properties are really selling well. Randy and EdR did a great job on their Investor Day and looking at their presentation on some of the cap rates they got for some of the drive properties further from campus about a 6-2 cap.

And so there is great opportunity for us, what we’re always looking at is making disposition that allows us to reinvest in more accretive assets and more accretive growth rates and so it's more of a science than a theoretical analysis on how we go through that and determine those growth rates.

Operator

Our next question will come from Ryan Meliker of MLV & Co. Please go ahead.

Ryan Meliker – MLV & Co

Just a couple of questions I was hoping if you could answer for me, with regards to Butler University, can you talk about ACC's appetite for engaging in an ACE plan there and obviously this is a smaller university, I think it's only 4000 undergraduates, it's not where you like to refer to Bill is the football school sort to speak. So is there really a strong appetite to engage in ACE or is this going to be more of a third part development services contract from your perspective?

Bill Bayless

And as we have talked about consistently with ACE, when we look at open market competition for our individual assets we focus on ownership at large public universities. However when we look at ACE investments we do like private schools and that they control the housing market and so for example Butler as a three year housing requirement and so you're not in an open market competitive situation but rather a captive to build an audience and it is also consisting of recycling a lot of their existing assets as replacement beds and so there is very little market absorption risk and so we do like ACE at private university that control the housing market by housing policy.

Ryan Meliker – MLV & Co

And then second question I had was with regards sales and marketing and general operating expenses as we go through the year. You guys are applied for materially above where you were last year, your leasing is 590 bps above last year, are we going to see material drop off in sales and marketing expenses in the 3Q and are you at a leasing level now and applied for level now that was below your expectations in February when you initially issued same store NOI guidance.

John Graf

Starting backwards we’re very pleased with our leasing velocity and are in a position where we had hoped to be in February, candidly is where we are. We’re also very pleased as Greg talked about in his script with the marketing spend in Q1 which does put us on track to the budget that we put forth to the marketplace. We still have about 25% of our portfolio left to lease and nothing is in the bag at this point yet. You’ve to finish and you’ve to finish strong.

We did budget most of our savings in 2014 versus 2013 in Q2 and Q3 and so we certainly expect the marketing cost to be less than they were last year and have budgeted that but we have to go through the process and finish it and deliver all that. So as Greg commented we’re certainly feeling very good about meeting our budgeted numbers of the 187 per bed on the same store, a 183 on the total and we have an opportunity to do better than that to put it, it's still too soon folks. You got to finish out, you got to finish strong.

Ryan Meliker – MLV & Co

So with that being said given the same store wholly owned operating expenses were up 2.6% in Q1 is it without giving guidance, is it reasonable to assume that we will see same store operating expenses grow at a slower base over the next couple of quarters as you guys pull back on sales and marketing cost?

Daniel Perry

When we set our budget for the year we certainly expected to be able to continue to or burying that expense growth I will just do the fact that a lot of the expenses came in Q2 and Q3 last year so that was where the real opportunity is on the saving side. So as Bill talked about we still have to go through the process and maintain focus on that expense control, but the it's -- accomplish our objectives. The original expectation and our guidance for the year was that we would have lower expense growth in that 2.6 we achieved this quarter and just to the extent it hasn’t been clear that 2.6 was then the range of what we were expecting for the quarter, it just ended up being -- we had a little more savings in marketing and some other areas and we expected and then obviously had the averages and utilities due to the win.

Operator

Our next question will come from Paula Poskon of Robert W. Baird. Please go ahead.

Paula Poskon – Robert W. Baird

Jamie could you talk a little bit about the RF that everyone is chatting about from Georgia and what ACC's appetite is there? What is your concern about it, what’s attractive about it?

Bill Bayless

Yes and certainly the attractive part of it is once again you’ve a major system of education is looking privatization as an alternative. I think we and EDR2 [ph] have been pretty candidate in terms of the selection of schools and asset base. In most cases are not core real estate. One of the schools we actually had to Google and so they are not household names in terms of places you think of core investment and so the way that we would approach any transaction of that nature is bringing solutions to the table for the University that meet their objective as it relates to off-balance-sheet financing with the most favorable credit treatment, but likely in many cases don't represent core markets where we would invest our equity. And so this is where Jamie talked about Butler, if universities approach these type of exercises from the transaction is, who is the best partner that I can pick to help me go through that process, to meet all of the objectives that we have in the concept of meeting the business objectives other may bring. You can structure a good transaction but we certainly don't look at that portfolio and say, Oh wow this is a great ACE opportunity that you are chomping at the bit at.

Paula Poskon – Robert W. Baird

Then I think for those of us that were at EDRs Investor Day, at University of Kentucky last week it was surprising to see the footprint of what they are building their relative to what we’re not used to seeing an off campus developments in terms of the amenities race going on where the on campus stuff is a little bit more less amenitized and more so focused on living, learning centers. Can you talk about how you guys do ACE developments? How the footprints are evolving on campus versus off campus and the different prospects?

Bill Bayless

Absolutely and for those of you that toured Barrett Honors College back in 2008-09 will recall, there we have 12 classrooms, we have the Dean’s office, we have the academic advising center and all of our amenities are academically focused. When ASU talked about Barrett, they talked about at their Honors Campus not just their Honors Housing. And so certainly the trend has always been in the on campus equity investment arena that so many of your amenities are geared towards that academic function especially when you’re talking about housing for first year students and honors program, which the residence hall development is completely tendered around.

As it relates to when you move into apartment style products and think again of ASU, where Vista del Sol which is where we have on-campus apartments, you may recall it from a policy perspective we’re a dry community. There is no alcohol allowed on that property. And so you’ve an academic environment that yet, because we have to compete with off campus apartments as an alternative there is an open choice to juniors and seniors there we have the amenities, the fitness center and alike. And so when you’re looking at off campus housing and you really have to look at whose is the target market being served and whether their consumer preferences. For example, if you build that residence hall with all academic amenities and if not dedicated for freshmen and you're trying to compete and pull juniors and seniors, you won't do it. And so you can never can forget the academic focus of the University based on the targeted market, coupled with what is the housing policy and the open market choices the students are going to make and so there is always that balance there.

Now I will say this, we have been trending even in off campus towards more academically oriented amenities, studies rooms and alike. If you look at our UC Irvine product that we opened in 2010 its upper class apartments and there is 15 study rooms in the property and they are full 24/7 and candidly that also gets into market research in terms of what the students want in each one of those markets.

Paula Poskon – Robert W. Baird

And in your own backyard there in Austin, when I was there for the InterFace Conference, I walked the West Campus neighborhood and saw probably five projects underway. Can you just talk about the leasing trends at your properties there for next year, and are you worried at all about the following academic year?

Bill Bayless

No and as we have talked about is Austin is the poster child for our discussion on this is a modernization of an industry versus oversupply and that when you look at Austin, Texas there is a couple of data points. In all of our 79 markets the total amount of purpose built student housing that exists as a percent of enrollment is 22%, often with the developments opening this fall is that 40% so it's almost double the national average of the amount of purpose built student housing that is been delivered as a percent of enrollment and as you see from our lease up numbers Austin is thriving. Not only are we ahead of last year’s pace but we also have excellent rental rate growth in the marketplace and we see everybody core pedestrian doing well.

Also the city of Austin just about five to six weeks ago now passed an ordinance under pressure from the neighborhood groups that no more than four unrelated people can live in a single family dwelling because they are still concerned that there is too many students outside of pedestrian neighborhood and they want them closer to campus. And Paula our rental rate in Austin is 4.3% so well above the 2.1, so again Austin is the poster child for what is taking place in college towns all across America.

Paula Poskon – Robert W. Baird

Great, and just a question for Greg. Greg, would you like to add any color on your retirement announcement?

Greg Dowell

Yes I’m very much looking forward to it. I mean after 15 years at a C-level job here at ACC, I was just ready to do something a little bit different. I’m going to continue to be a friend of the company and will continue to be a resource for the company. What I really like to do is take my CPA and my 15 years of public company experience and utilize that to serve a Board member for other companies. So that’s what I would like to do but like I said I’m going to continue to stay involved here at ACC to some degree or another.

Bill Bayless

And Paula, since you brought it up, and I was actually going to do this in my final closing comments but I will do it now and certainly in order to thank Greg for all of his efforts here at American Campus and what he has done and most importantly for the team he has built and anytime you’ve changes of C-Level position you want to make sure that things grow smoothly and Greg is working with us on a great transition. But very similar, you know, many of you on the phone remember our dear friend Bub Nickel. And consistent as when Bub left Greg built a great team behind him and we've got all the folks in place Jim Hopke, Jennifer Beese and Jim Sholders, that are running the day to day operations and are stepping in and I don’t think we will miss a beat, just as you've seen in other areas when that is occurred. But I want to thank Greg and also the whole market just got an infomercial there on, if you'd like to some board, so you all got to work for him.

Operator

Our next question will come from Dave Bragg of Green Street Advisors. Please go ahead.

Dave Bragg – Green Street Advisors

Since we're talking about Greg, I wanted to follow up on your third-quarter plans that you outlined on the third quarter of last year for him to build out the asset management effort, and wanted to ask you where do you stand as it relates to those plans? It was said to be extremely important at the time and how does his upcoming departure affect it?

Bill Bayless

As the asset management function under Greg as we talk about is spear headed by Jim Hopke as our EVP of Asset Management as we talked about at that time. Jim’s background, historically at Insignia and JPI was an asset management and he brings that professional expertise. We have made great progress, you’ve seen from this call appropriately the first focus of our asset management function was the evaluation of our historical marketing spend, even beyond 2013 where the effectiveness of ad, the effectiveness of various mediums, the effectiveness of various campaigns and in bringing that efficiency right back to that level.

Some of the longer term initiatives that Jim and his team are focused on really revolve around the scalability of the organization and we have talked about two things as being real potential opportunities for significant value creation beyond your standard and ordinary asset management opportunities. One of those relates to the multiple property markets that we’re in and where our properties have always operated as independent business units and the opportunity for more collaboration and scalability within a market. It could have a fairly dynamic change on our overall human resource cost structure. The other relates to the branding opportunity at American Campus, in that like our product differentiation has always been one of the core tenets of why we're so successful.

And so we don't build an individual floor plan, building type or name of a community that is a brand by itself which is that differentiation, it is our product advantage.

However, rather than marketing each property independently as its own property unit, there does exist an opportunity to branded a higher American campus level and bring it under a more singular umbrella. Now we’re not fixing any problem and that our occupancy and our rental rate growth has led the industry for a decade. So we don't want to break something that’s working incredibly well. But there's a real cost structure opportunity in that initiative and those two focuses are really more longer term because they have to be very thoughtfully conceived, they have to be market tested and then very carefully rolled out and that’s just a couple of the higher-level strategic initiatives we’re working on. Beyond your standard metric evaluation, we had a lot of integration last year, we brought in a lot of properties and there are certainly opportunities to go through each one of those operational line items in the metrics of where things are coming in and improving those also.

Dave Bragg – Green Street Advisors

And your comments earlier regarding your expectations for marketing spending was encouraging. But can you break out your expectations on that line item and expenses more broadly between the legacy same-store pool and the 40% expansion of the same-store poll that you have this year? To what degree are you cutting cost the first time around at newly-acquired assets, versus really trimming at the assets that you've owned for a long time?

Daniel Perry

Just to make sure I understand your question, you’re asking about overall expense growth amongst the legacy properties versus some of newer portfolios such as Kane [ph] and Campus acquisitions?

Dave Bragg – Green Street Advisors

That is right. So you say 1.7% to 2.2% same store expense growth is your expectation for the full year, but can you break that out between the legacy same store pool and the expansion of the same store pool, with the 40% expansion with acquisitions that you mentioned? And then the only specific line item that we are interested in hearing about is the marketing costs.

Daniel Perry

Well I don’t know that I can get into detail on marketing cost by the portfolios right now, what I will tell you is that if you look at our overall expense growth expectations for the legacy versus the new portfolios they are in a pretty tight band as far as the range around that average of 2% at the midpoint on expense growth. It's not that we're looking for big declines in expenses that the legacy portfolio, a lot of it overages that we experienced in 2013 were broadly spread across a portfolio. As evidenced or as further evidence of the true disruption of the integration and not some kind of market by market specific overage related to supplier…

Bill Bayless

Yes let me interject and put that in context. If you look at your 2013 marketing costs, in Q1 of last year the same-store portfolio was at $53 a bed and the total portfolio was a $54 per bed and so there was very little differentiation in last year’s cost between the legacy assets and the new properties coming inline, all of those now rolling into the current same store which is at the $43 that Greg talked about. And so it's been consistent in the marketing savings across the Board.

Dave Bragg – Green Street Advisors

And the last question just relates to the term that you use, pedestrian to campus. Can you define that for us? I wonder if it means several different things or if there is a specific distance to a specific part of campus that you mean when you say that?

Bill Bayless

It really means that you can walk to class and that does vary by market place for example, if you’re right inside of a half mile at a Southern Southeastern University you’re walking to class. If you’re 6/10ths of a mile in a Midwest snow lake effect property that might not be pedestrian.

And so literally it does mean walk to class and when we’re looking at individual assets literally what we do is our due diligence we drive to the property, we get out of the car and we walk to class and say our students are going to do, is it truly a pedestrian property. And so it's not always just the exact mile designation. You got to focus on the geography and access.

Operator

Our next question will come from Nick Joseph of Citigroup. Please go ahead.

Nick Joseph – Citigroup

Appreciate the commentary on cap rates at core pedestrian and suburban properties. Can you talk about for the assets you're planning to market later this year, where they fit into those different categories?

Bill Bayless

A lot of Nick, we still have 18 properties that fall outside of the one mile range. A large majority of those continue to be from the portfolio acquisitions that we did with GMH and some of the other companies that don't meet our long-term investment criteria, and so we still have that pool of assets available and as a source of our recycling. In some cases the reason we have held them is they have good, steady, growth metrics sometimes they are slower than our typical overall growth metric but they may have been existing getting things like that, we have taken in consideration in terms of repayment.

So that pool of property continues to be a big source of disposition. We have then simultaneously, though, do evaluate the entire portfolio each and every year, typically in the setting up as we wrap up the lease up and we’re looking at setting the rental rates for next year. I had mentioned we always do a three-year rental rate growth projection and we look at those growth rates, and we look at if we think we do have assets that may be located inside of that mile but may have somewhat of a diminishment in terms of their growth profile.

We also then very much look hand-in-hand within individual markets as to enter market in side, it plays within the same market, great example, we sold two core pedestrian assets at Arizona State University. one of the low 5% cap the other sub-5% cap several years ago as we were investing in ASU ACE. And so sometimes it's strategic dispositions based upon ACE or other better off campus place. This year we sold an Orlando property or 2013 that was close to campus but we had the new development taking place even inside of it and so again it's not always by category of location it's based upon really doing the homework on the future growth rate.

Nick Joseph – Citigroup

Thanks. And what does guidance assume in terms of the timing, size and rate for the bond issuance this year?

Daniel Perry

We assumed a $400 million bond offering around the middle of the year, late second quarter to be a little more specific and we’re assuming about a 5% interest rate. At the moment it looks like we would price somewhere in the 4% or 3.8% [ph] range, so we have got some room for opportunity there but we wanted to make sure that we left a little bit of a cushion as everybody expected rate certainly to go up throughout the year. Here we have been happy to see them hold in.

Michael Bilerman – Citigroup

It's Michael Bilerman, I just had a question just going back to sort of same store expenses and you sort of talked a little bit about utilities and marketing and if you were to take though that of the same store expenses that means the rest of the expenses were probably up about 1.7%. Can you share with us some details of the other components of expenses and you had this great page in your supplemental last quarter page 7, we sort of broke out each of the categories and I feel like we got a great disclosure and now have gotten a couple of pieces but not the whole picture. So I was wondering if you can share some of the other expense categories which is about 70% of your expense base. And what happened to payroll, what happened to taxes, what’s happening to G&A, what’s happening to R&M and what’s happening to insurance that would net out to that 1.7% increase.

Bill Bayless

Let me go ahead and address the disclosure Michael and then I will pass it off to Daniel to give you some more detail on that and thank you for, Michael has led the charge with us in terms of really urging us to do as much disclosures as possible on OpEx. As we did on the last call, we announced that we would be doing the annual disclosure and we gave last year's annual disclosure only in this annual form because 2013 was so abnormal related to the integration and the lease up and so we didn’t want to give a quarterly breakdown, afraid that it may create more noise and a lack of understanding of a normalized year.

What would our plan will be when we release our year-end 2014 total expense breakdown, we will include a retrospective four quarter look back because we do expect 2014 to represent more of a normalized year and so then our program each year and we do that annual to provide those four quarters retrospectively.

Daniel if you want to go ahead and address the....?

Daniel Perry

Michael you’re correct, if you look at the components of operating expenses excluding utilities and marketing we did grow expenses 1.7% just to go through the same line items that we disclosed on last quarter’s call, we were about a $158 per bed on payroll that was a little better than what we had budgeted, as we talked about one of the things that we expected to drive slightly negative same store growth to start out the year was that we were stabilizing our payroll with some those portfolio properties from last year that are now are from 2012 that are now part of same store but we saw good human resources management and expense control there and only felt 2% growth over last year in payroll.

Property taxes were in line with our estimate for the year, we were assuming a 7.2% annual increase in property taxes. Actually expecting a little higher than that in first quarter due to some properties that have now been reassessed and development properties that came in ’12 and it's been reassessed and so this would have been a new reassess taxes versus first quarter of last year, or would have been reassess.

So we saw a 7.8% growth, $165 per bed in property taxes, but that is in line with our expectations and actually a slight positive to what we expected.

G&A and other, again it was in line with our expectations, we expect a little bit of growth there, but very much inflationary, it grew 3.5% this quarter, $130 per bed.

Repairs and maintenance, that’s certainly an area that we talked about as part of our $5 million of expected overage cuts this year that we expect to be able to have success and we had great success this quarter, brought it down 1% versus or 1.5% versus last year. Our budget for the year is to bring it down 1% so we did 50 bps better than what we’re expecting for the full year. Repairs and maintenance were $78 for the quarter and that’s one of the ones that we talked about, what we want to be careful about is or why we didn’t like the idea of giving quarterly is the seasonality.

Repairs and maintenance is a very big seasonal number, third quarter when we go through turn, you will see our repairs and maintenance to be a lot higher on a per bed basis and then lastly, marketing, or excuse me insurance, it was $22 per bed, that grew 6/10ths of a percent and we were expecting 1.4% for the year. So definitely within targeting for the year.

Michael Bilerman – Citigroup

That’s really helpful and I guess your comment earlier in the call that the 1.8 million of extra utilities you’re saying what was completely offset, so the fact that you were budgeting $1.8 million of additional costs on 70% of the expense base. But you said marketing came in line, is that the way we should think about it that the unexpected 1.8 million you were able to cut away?

Daniel Perry

Actually marketing came in better than we expected, so marketing was part of what helped offset that 1.8 million but yes the idea -- the 2.6% was within a pretty close ball park of what we were expecting, slightly better actually and so we were able to offset that 1.8 million. I mean we obviously had some increase expected in utilities but it was more inflationary as we didn't expect the impact cold weather, but yes marketing was part of what helped offset that 1.8 million as well.

Michael Bilerman – Citigroup

And I just want to make sure I don’t know if I caught the full gist of the answer in terms of raising equity there in a marketed deal or using the ATM, Bill you talked about focus on development, focus on lease up, focus on expense control, focus on selling some assets that equity was not high on your list, is the way I sort of took your answer even though the stock I guess from a consensus NAV perspective let’s call it 38 a year ago it was at 42, we can harp about whether that change is merited or not but your stocks is at 38 today so you’re somewhere within that realm. Who knows where stocks are going to be at some point you’re on this -- you are on a capital spending that’s part of what’s attractive, you’ve an external growth and eventually you got to fund it. I’m just trying to put all those pieces together about how we should be thinking about…

Bill Bayless

First and foremost we look at our disposition program as the most of accretive way to match fund our development pipeline specially given where current cost of equity is. To the extent that we, as we get through the end of ’14 and we want to look at opportunities for one-off acquisitions, we would look to -- well we would look at what we think is the most accretive for NAV. We would certainly looking match funding those with additional dispositions. We might also look at the ATM as a way to help incrementally match funds, the development pipeline and any one-off acquisitions in the future.

As we move above NAV and that would obviously help as would dispositions and recycling of capital start to trend leverage back down which is a go for us for sure.

Daniel Perry

But certainly as NAV improves, we will always look at ATM as a viable alternative for us.

Michael Bilerman – Citigroup

But no, it doesn’t sound like any desire given recovery in the stock to go out and do a…

Bill Bayless

There are large regularly equity offering, not at this close to NAV.

Operator

Our next question will come from Alexander Goldfarb of Sandler O'Neill. Please go ahead.

Alexander Goldfarb – Sandler O'Neill

Just going through on the expenses a little bit more, you talked about -- up at the beginning of the call, you talked about $850,000 in marketing savings, $1.3 million in operational synergies savings, so $2.1 million. But to Ryan's question, you also answered that the biggest savings this year are going to come in the second and third quarter, which if you take this run rate is $6 million, but your guidance is only $5 million. Are there some offsets there or this is just some -- or that $5 million is really a conservative number and you guys could be on track to save quite a bit more than that?

Daniel Perry

I would say Alex is there is certainly opportunity to outperform on that 5 million target we had set. We’re expecting to get good savings on specifically marketing and in the second quarter and third quarter we did -- target returning all the way to normalized levels in Q2 and Q3.

But we didn’t target in Q1 either and we were able to return to a normalized level in Q1. Now what Bill has pointed that is very important is that we still are on the home stretch here on leasing quite a bit left to do and we really want to perform well against our assumptions in guidance on occupancy and so we’re going to spend the appropriate and prudent marketing dollars to achieve that.

We think it will certainly will pay for itself. So we’re going to balance that and make sure we meet our target, but then also look for opportunities to outperform on 5 million.

Alexander Goldfarb – Sandler O'Neill

Okay. And then just taking your guidance for the year, the dispositions are in there, the bond offering is in there. So on the positive, if you guys stay on this track to have better savings, that is a positive, but it sounds like that would be offset as your stock price improves that if you guys start using the ATM then that is an offset. So I mean is that the way to think about it or were the ATM comments really sort of longer way out there in which case there is more bias to the upside in the numbers?

Daniel Perry

It's early to say, I mean it depends on the stock trades, how we feel about what’s most -- for us earnings are certainly important, but we always want to manage our balance sheet and do what, make sure we’re using a capital approach that’s accretive to NAV.

So first and foremost we will focus on that and that’s the most prudent thing and that offset some of the upside that’s a decision we have to make but we will certainly before we get to the bond offering we will look at, do we want to size the bond offering differently if we think we’re going to use the ATM. If we think it's a comparable cost to capital, so those are things we will look at as well.

Alexander Goldfarb – Sandler O'Neill

Okay, and then switching gears. Going back to the InterFace Conference, speaking to a number of the portfolios that are out there, it sounds like there is pushback on the presales. How much of that do you think is people wanting stabilized prices for presales today versus expectations for presales for the risk has gone up and therefore maybe there is more opportunity for you guys to buy presales at more attractive yields?

Bill Bayless

Yes Alex I think you hit the nail on the head in terms of -- some of the larger portfolios that are out there are in an eclectic base of assets and that as you said they contain significant amount of to be delivered product and if you look at you know the cap rates that William talked about on the mezzanine development, deals that we’re doing is between 6 in the quarter, 6.5. And so you're not going to get a 5 in a quarter cap rate on something you haven't delivered yet and it's occupied.

And so there is not a disconnect in terms of seller, buyer, cap rate expectation on stabilized core. There is an expectation of when can I get paid for it. And so I actually think that market continues to be, you know we haven't seen a lot of fluctuation in our mezzanine valuation. It's literally just a seller expectation of wanting to get paid before they deliver the value.

Operator

Our next question will come from Jeffrey Powell of Goldman Sachs. Please go ahead.

Jeffrey Powell – Goldman Sachs

Just want to follow up on your debt to EBITDA comments in your prepared remarks. So as of this quarter, you were 7.7 times or is it 6.3 times in 4Q, 2012; just curious if you have a target debt to EBITDA level and if so, if there's any earnings drag involved in getting there?

John Graf

Certainly debt to EBITDA is something we’re keeping an eye on as we are with leverage. Typically our debt to EBITDA does start to pick up as you move through the first and second quarter of the year versus fourth quarter. We’re building out that development pipeline for delivery in the fall and we have no EBITDA coming in from it yet. So we always see our debt to EBITDA maximize or top out as of June, or as of the second quarter report. And then come back down in the third quarter when we are starting to produce EBITDA off of those development properties.

That being said, as with leverage we’re little higher than we prefer to be right now, usually, probably, I'd say 0.5 to a point on debt to EBITDA and as we have told Michael we’re not looking to go out and do some type of large room regular way equity offering to address that, especially if it's close to NAV, kind of stock price level. Rather we will look for two prudent balance sheet management through dispositions, recycling capital and use of our ATM at the appropriate stock price to start to take that back down.

Operator

Our next question will come from Jeff Spector of Bank of America Merrill Lynch. Please go ahead.

Jana Galan – Bank of America Merrill Lynch

Hi, this is Jana for Jeff. Congratulations on being awarded the Butler mandate and I understand it is very early in the process, but can you broadly speak to how you are thinking about the economics of this or maybe some of the other procurement deals? Should we expect a similar yield, call it 7% that you're expecting for your current development pipeline or are you willing to take a little bit lower yield given slightly lower risks?

Bill Bayless

As William has stated our investment yields, we have always said for the last 12 to 18 months we’re targeting largely between 6.5 and 7, we have been coming in closer to 7 on those. We do look at the 6.5 certainly when we talk about West Coast deal from a development perspective. We have been able to get pretty darn close to that 7 but we don't see a differentiation between the age transactions and off campus developments that we are able to get in those areas. They have both in that range pretty consistently.

Jana Galan – Bank of America Merrill Lynch

Thank you. And if you can maybe just touch on your supply outlook for fall 2015 for the markets you are tracking or any university markets are concerning and significantly higher?

Bill Bayless

The good news is that I said in my comments is that we continue to see supply not impacting core pedestrian development. We have got 41 markets where we have new supply coming in total of 43,000 beds that we talked about on the last call. In those markets we’re currently 75.4% leased so actually a little bit ahead of the overall portfolio and it's also tracking about 340 bps ahead of where we were last year in those same markets and our rental rate growth is projected at 2.2, so again no diminishment there.

When you look at individual markets of those 41, I will tell you there's three, where we are being impacted by new supply, Orlando, the good news is, we’re doing it to ourselves. We have a new 1313 bed property that is coming in on the best site in the marketplace across from the main gate of university and so we have a lot of one-year cannibalization of our own existing assets in the marketplace, which we don't expect to continue beyond next year.

In Athens and Chapel Hill those will be the other two markets and these two markets are where we have GMH assets left over and our property holdings there are more than a mile from campus and so we do see a little bit of an impact on our velocity and pricing power because the development is taking place inside of us. And so overall you know when a 165 assets, 41 markets with development, negligible and again never related to anything other than what we have always talked about, where we are having issues on those dry properties. We have always talked about that’s the nature of the dry properties.

Operator

Our next question will come from Karin Ford of KeyBanc Capital Markets. Please go ahead.

Karin Ford – KeyBanc Capital Markets

I just wanted to go back to the large-scale acquisition portfolios out there. I think I heard you say, Bill, earlier that ACC is still on the sidelines with respect to those. Given the run in the stock price and other things, do you still view ACC as definitively on the sidelines here for acquisitions through the end of the leasing cycle, through the end of the year? How are you guys thinking about that?

Bill Bayless

It's not so much on a timeline basis as an opportunity basis and without getting into any particular portfolio, whenever you’ve seen us pursue a large portfolio it is because that large portfolio a significant majority of it, you know typically 75% plus of the asset base met our criterion of core pedestrian in Tier 1 markets and right now there's not a portfolio out there to meet that criteria as an overall portfolio.

And so even if we worked on the sidelines I don’t know that we will be playing in whole on the portfolios that are out there.

We certainly continue to be focused on the lease up, the internal value creation but make no mistake. I mean this is one of the things that everybody on this phone is so excited about, this is an industry in its infancy modernization has to take place consolidation that exists in this sector, the opportunity is beyond any other segment of real estate. And so long-term American Campus is certainly positioned to be the dominant consolidator in the sector. However this is a marathon it's not a sprint, we're always going to play a very delicate balance in making sure that we’re prude managers of our balance sheet. Looking at the opportunities as they come along and making sure that everything that we do is accretive and value creating and so right now there is nothing pressing out there that we would candidly want to get out there and pursue.

Karin Ford – KeyBanc Capital Markets

Okay. Next question is I think you have said before that you are hoping to achieve something like 3% to 6% NOI growth in 2015. Given the pre-leasing progress and the expense progress you have made, is that still a good range or are you thinking better on that front?

Bill Bayless

It's still a good range and again it's still and where we could not be more pleased with the progress and where we’re, well you got to finish out. If this were a football game we’re on the 25 yard line of the other team, we got 25% of our portfolio left to complete but you got to run the place and you got to get in and score and candidly whether or not you have gone for the extra point or the two point conversion is the final management of those no-shows in the last two weeks of lease up. And so let us get through that process and finish and then we will let you know exactly how we feel but certainly that 3% to 6% range for 2015 is looking good based on the current trend and we will certainly as we finish out speaking more factually to it.

Jordan Sadler – KeyBanc Capital Markets

Hey Bill, it's Jordan here with Karin. I wanted to just come back to her prior question and your answer, being on whether or not you guys are on the sidelines because I think on the other end of the phone we can all sense your excitement and those of us who have been along to the ride it's been a great one as we watched you kind of grow and become the consolidator and the leader in this business over the last decade. We’re curious if last year’s lessons actually do put you on the sidelines until such time you and or your investors more broadly feel comfortable that consolidation is still necessary and the right thing to do from a capital perspective going forward.

Bill Bayless

Well that’s a given, if it's not a right thing to do from a capital and value creation perspective then we shouldn’t do it and you will never get an argument from us on that.

As it relates, I’m glad you brought up the lessons from last year and I hope what we’re proving out, I mean if we go back two calls ago I think we’re the institutional capital and Wall Street’s question was they largely on the lot of media misperceptions that were out there coupled with our lagging leasing velocity is that there was a big question mark in everyone's mind is there a change in the fundamentals of student housing? Or is the slowdown in leasing velocity and then the expense cost of that related to the disruption of integration that ACC was talking about.

And then I would drill down further and say please don't lose the point folks, we grew this company from 350 million through more than 5.5 billion with virtually flawless integration. What was unique about last year’s integration was that we were integrating off of seven separate operating platforms in a very unique situation. That was the lesson we learned in terms of how should we approach that situation.

We don’t have an integration problem, we had unique aspects of that integration that we learned a lot of lessons from. So as it relates to future growth opportunities I absolutely feel today that American Campus Communities as an operating platform is completely ready and skilled and continuing to grow in integrating asset while continuing to create value that we are.

However we are in a capital constrained environment and the one thing that we have never done and we will never do is put ourselves in a box from a leverage perspective to grow for the sake of growth. It always has to be thoughtful and analyzing the opportunities before you which are the most accretive and looking at the capital that you’ve available and what cost of capital is. And I think the one thing that no one on this phone would dispute is that we have always been good stewards of capital in making those decisions on a historical basis and we will on a go-forward basis.

Operator

Our next question will come from Carol Kemple of Hilliard Lyons. Please go ahead.

Carol Kemple – Hilliard Lyons

I just had a couple questions on the Butler transaction. Given that you said Butler has a three-year residency requirement, it seems like they can keep their beds pretty much filled no matter what the quality of the dorms is like. What is driving the university to do this renovation?

Bill Bayless

They have a President that is very strategic and very long term focused on making sure his words that his students have a platinum experience. He wants to build recruitment and retention in a world-class university, and so if you want to do that you have to be world class and platinum in everything that you do.

And so we think we can support him in that vision in helping him fulfill it.

Carol Kemple – Hilliard Lyons

Do you know how many other parties you were competing against for this project?

Bill Bayless

It was as pretty much every one of these procurements as your normal cast of characters. Certainly you’ve the groups that always American Campus and EDR and Capstone on the private side and typically another dozen or so to make the original or submit the original process and then get narrowed down through the process.

Operator

Our next question will come from Vincent Chao of Deutsche Bank. Please go ahead.

Vincent Chao – Deutsche Bank

I think most of the questions have been answered here, but just curious it sounds like marketing expense this quarter was a positive. You don't want to get too far ahead of yourself I guess and just make sure that you do continue to maintain the strong leasing volume so far this year. Just curious how you are feeling about rate. I know it didn't really change here since last quarter, but just wondering if you're feeling like you may be getting close to a point where you could potentially push rate a little bit more.

Bill Bayless

And again the 2.1 is our current projection based on what we think will happen throughout the remainder of the lease up and so if we put that 2.1 out there at this moment in time based on all the markets that we’re in and where the current velocity is that’s where American Campus believes as of this moment in time we will end up. And so other than market conditions on a go forward be better than we anticipate or worse than we anticipate that’s where we truly expect to come in at this moment in time.

Vincent Chao – Deutsche Bank

Got you. And maybe do you have the number of the stuff that has already been leased, what the rate increase has already been that has been booked?

Bill Bayless

Yes it's a little north of 2.1, it's closer to about 2.3.

Operator

(Operator Instructions). I’m showing no additional questions at this time, this will conclude the question and answer session. I would like to turn the conference back to Mr. Bayless for closing remarks.

Bill Bayless

Yes and thanks everybody for going us today and we value and appreciate your alls’ historical and current support of American Campus. For us we’re very pleased with our progress year-to-date and certainly two quarters into this year’s leasing season whereas the last questioner just said, we don’t want to get too far ahead of ourselves. We have got a lot of work to do and strong finish that we need to make and we will look forward to talking with many of you at NAREIT where I’m sure we’re releasing another leasing update going into that conference and give you more color and then talking to you all on the next call.

Operator

Ladies and gentlemen the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.

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