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Education Realty Trust, (NYSE:EDR)

Q3 2010 Earnings Call

October 28, 2010 05:00 pm ET

Executives

Randy Churchey -- President and Chief Executive Officer

Randy Brown – Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Tom Trubiana – Senior Vice President and Chief Investment Officer

Brad Cohen – Investor Relations, ICR

Analysts

Paula Poskon -- Robert W. Baird

Anthony Polon (ph)

Michelle Ko -- Bank of America-Merrill Lynch

Karin Ford – KeyBanc

Austin Wershbit

Alex Goldfar – Sandler O’Neill

Hendel St. Just with KBW

Steve Swat, -- Morgan Keegan

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Education Realty Trust Third 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, October 28, 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 Third 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.

I’m very pleased with our progress during the first three quarters of the year. We are showing tangible, positive results on each of our lines of business. First I’ll speak to property operations. Throughout the year, we completed many changes to our community management processes, procedures, and tools which have enabled our regional community managers to better focus on their three top priorities; pleasing our customers, generating increases in net operating income, and pre-leasing for Fall 2010.

For the Fall 2010 leasing term, we achieved a same store 3.2% increase in occupancy and a 2% improvement in net rates. This combined improvement in occupancy and net rate should result in an approximate 4% increase in same store revenues for the next 12 months. Our portfolio begins the school year 92.2% occupied, versus 90.1% last year.

In addition to the superior pre-leasing results, our property operations team was also able to control expenses, and deliver an increase in operating margins; overall, an outstanding nine month performance. We achieved these great leasing results and margins expansions concurrent with making changes in management processes and procedures. We’re probably 70% finished with implementing the restructuring improvements that we highlighted at the beginning of the year.

Two of the more significant items in process are the completion of centralized revenue yield management tools and filling our open corporate leasing and marketing positions. Even with these two items to be completed, we enter this coming leasing season in much better shape than the previous year. As a result, we expect that we will be able to achieve market leading results in the next leasing cycle, as well.

Now to acquisitions and capital recycling. Earlier this week, we announced the acquisition of a community at the University of Virginia, and the sale of nine communities, including eight of the former Place communities. The UVA community acquisition meets all of our investment criteria. The community is of sufficient size, within two blocks of campus, has formidable barriers to entry, had bed/bath and bed/parking parity, is recently built, and commands a relatively high monthly rental rate per bed, of approximately $670.

UVA is a top tier university, with an enrollment that continues to grow, and finally, we expect the unleveraged ten year yield to be in the low double digits. We are well positioned to capitalize on new acquisition opportunities and are well aware that finding assets like UVA, that meet our underlying criteria will not be easy, but is one of the reasons we are focusing our efforts on creating and further building our industry relationships in order to find new, maybe off market opportunities, both for acquisition and development.

We are funding the UVA acquisition with cash on hand and through our capital recycling program. We have consistently communicated that we anticipate disposing of the 30 to 40% of our beds that do not meet our current acquisition criteria, when we find the exit cap rates to be attractive. The sales of the nine core assets we announced earlier this week were an application of this disposition strategy.

We are selling nine communities which have an average age of 11 years, an average monthly rental rate per bed of $358, and average distance to the edge of campus of 0.7 miles, and serve smaller universities with an average enrollment of 15,500. These sells are occurring much quicker than we had anticipated. This timing was influenced by the rapid decreases in cap rates during 2010.

Significantly for us, the cap rate spread between A+ properties and lower rated properties has narrowed substantially. I’m not going to give you our specific entry and exit cap rates, I believe quoting such could be detrimental to our continued involvement in the transactions marketplace. But the economic cap rate spread on forward and RI for these two transactions was 150 basis points. We are happy with this spread.

Upon final consummation of these announced sales transactions, and including the pending Macon transaction we announced last quarter, we will have sold ten communities, representing over 4100 beds, or 16% of the beds in our beginning of the year owned portfolio. We will have accomplished much of the previously communicated strategic recycling program.

Furthermore, including the Macon transaction, and assuming the announced transactions close as anticipated, we will have sold nine of the 13 original Place assets. I want to stress, we do not have any pressure to sell any asset. All of these sales and targeted sale assets are providing positive cash flow, and we have sufficient financial flexibility to pursue a meaningful number of external growth opportunities without these sales. However, the evaluation of our portfolio of owned assets is a continuous process.

Next, to our third party management services line of business. We’ve completed our leadership changes and are now fully staffed to pursue new business. This is a low risk business that provides reasonable fees, and equally important, provides us with additional industry relationships to help build our other lines of business.

Year to date, we’ve added two new management agreements in connection with our development deals, at SUNY-ESF and Johns Hopkins. These management agreements commence in 2011 and 2012 respectively. I expect we will produce additional growth in the months to come.

I want to reiterate how pleased I am with the progress we’ve made in the first nine months of the year. The opportunities ahead are exciting. Our team and company are well regarded in the industry and we are well positioned to exploit these opportunities to create meaningful shareholder value.

With this overview, I’ll pass the call on to Tom and Randy for their comments on development and the third quarter numbers, and then we will try to answer some of your questions. Tom?

Tom Trubiana

Thank you, Randy. Good afternoon everyone. Let me provide some color on our development activity. We recently closed on the financing and began construction on two third party developments. A 969 bed, $59.5 million development at East Strasburg University, and a 634 bed, $35.2 million development at Mansfield University.

The combined third party revenue from these two new projects is $3.7 million, which will be primarily recognized in 2011. We are currently in various stages of development on our construction on three investment developments. Johns Hopkins graduate housing, the University of Texas ONE plan, and the Storr center adjacent to the University of Connecticut.

Johns Hopkins representative, state and local public officials, and others committed to the revitalization of East Baltimore celebrated the ground-breaking of the Johns Hopkins graduate student housing project in early September. Construction is well underway, with the targeted completion of this 20 story apartment building scheduled for December of 2012.

Johns Hopkins Medical Institute has informed us that they are receiving a great deal of interest in this project, so we are accelerating the production of marketing materials. The development of the University of Texas ONE plan project is also advancing nicely. The project has been approved by the University of Texas Board of Regents, and we are in the final stages of hammering out the last details of the ground lease with the University.

Design of this 16 story apartment building is progressing per schedule and the city approval process for site plan approval is also on track. We expect ground-breaking on this project to occur in the summer of 2011 with opening scheduled for the summer of 2013. The third investment development project currently underway is the Storr center located adjacent to the University of Connecticut. This mixed use town center project is heavily supported by the University of Connecticut and the town of Mansfield. The 290 unit collegiate housing community is being developed in two phases.

We are currently finalizing a development agreement with the town of Mansfield for public improvements for the project that are being funded by over $20 million in awarded state and federal grants. Design is well underway, and all of the entitlements required to develop this project are in place. Ground-breaking on the first phase of the development is scheduled for the summer of 2011, with the fall of 2012 opening. The second phase is scheduled to open in the Fall of 2013.Our development team is actively pursuing new additional opportunities, including ONE plan investments, off campus developments, and straight third part development deals.

While it’s difficult to predict the exact timing of these opportunities, our development team is extremely busy working a number of potential deals, in contrast to prior years where there was slower new development activity. Of particular interest is the level of depth a future ONE plan for on campus equity developments. The most recent Moody’s position paper on public/private partnership does have universities focused on the structure of any public/private partnership that they’re contemplating.

As a result, most RSPs request proposals that offer several financing options. With all that being said, given the lack of state funding, dwindling endowments, and the desire to reserve the debt capacity for other users, we believe we will continue to see universities looking for private equity as a means of revitalizing their student housing. Our company is well positioned to meet these university housing needs, no matter which financing option they choose.

With that development summary, allow me to turn over our earnings call to our CFO, Randy Brown.

Randy Brown

Thank you, Tom, and good afternoon everyone. We’re pleased to report very solid operating results for Q3 and very proud of the effort our team members have put forth this quarter and throughout 2010. Funds from operations are destined for FFLAs with $0.02 per share, compared to a loss of $0.01 per share for the same quarter last year. Our same community NOI for Q3 improved nearly 15%, driven by a 2.6% increase in revenue and a 2.4% drop in operating expense.

Our revenue increase is a direct result of the positive occupancy and rate growth associated with our Fall 2010 lease terms that began in August. As seen on page five of the Q3 supplemental, our Legacy portfolio expands to revenue increase of 1.6% while the Place portfolio was up nearly 7%. We continued with our trend of strong cost control at the property level in Q3.

Same community operating expenses decreased $420,000 for the quarter, primarily due to reductions in marketing expense, bad debt, real estate taxes, insurance premiums, and good cost control over time expense. Year to date, same community operating expenses are down nearly 1%, and complements last year’s reduction of 4.6%. We continued making progress in reducing our general and administrative expense and becoming more efficient.

Corporate G & A expense for the quarter was down nearly 8%, due to lower compensation costs, and reduced third party vendor expenses. Our balance sheet and capital structure continues to be sufficiently strong, allowing us the flexibility to execute our capital plans. As of September 30th, we had approximately $28 million in cash, and $42 million of unused credit facility, which provides a solid capital base for growth, as evidenced by our recent acquisition announcement.

Upon the completion of our announced asset sales in Q1 of 2011, our debt will be decreased by an additional $33 million, and our credit borrowing capacity should be expanded by an additional $27 million, to nearly $70 million if needed. This availability plus the cash on hand should give us ample capacity to pursue additional acquisition and development opportunities as they arise.

And finally, turning to the 2010 guidance, we are reaffirming our prior full year guidance of funds from operations adjusted, in the range of $0.38 to $0.42 per share. We do not believe there will be any material impact for existing 2010 guidance for the recently announced acquisitions and planned dispositions, and our reaffirmed guidance does not include the impact of any capital transactions, ONE plan developments, or any new third party development and management contracts. Now I’ll turn the call back to Randy for some final comments.

Randy Churchey

Thanks, Randy. Before taking questions, let me summarize. In the first three quarters of the year, we’ve made great progress. We continue to restructure our property operations while producing market leading results for the 2010/11 leasing term, and expanding operating margins. We’ve increased our third party development fee awards by over 20%. We have positioned our portfolio through the sale of nine non-core assets and the acquisition of a community at UVA, and we’ve been awarded ONE planned investments at the University of Texas and at two additional developments adjacent to Johns Hopkins and the University of Connecticut. These announced developments and the acquisition and sales I’ve previously highlighted will improve the quality of our portfolio and should drive better long term growth, and ultimately provide value for our shareholders. Operator, please open up the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions.) Our first question comes from the line of Paula Poskon with Robert W. Baird. Please go ahead.

Paula Poskon -- Robert W. Baird

Thank you, good evening everybody. I just wanted to clarify, Randy Brown, that I heard you correctly. The $70 million that you spoke of in terms of potential borrowing capacity, that was post all pending transactions? Is that correct?

Randy Brown

Paula, that’s where we’re at right now, as far as our availability under our line, which is about $42 million. We then used a portion of that to buy the UVA property, as we mentioned in the press release, but to the extent that we add that back in to our borrowing asset base, that would take that total of that availability up to $70 million.

Paula Poskon -- Robert W. Baird

Okay, just to be clear. So post all the pending transactions, that’s what you think your sort of next wave of investment capacity would be?

Randy Brown

No, Paula, that’s where we are right now. If the sales go through as we expect them to do so, as you know, that raises $85 million plus or minus the proceeds. So when you do the math, we entered before these transactions we felt we had capacity to be able to do $150 million of transactions. Now that we’re raising, essentially, additional $25 million through these purchases and sales, our total capacity if everything closes moves to $200 million.

Paula Poskon -- Robert W. Baird

That was my question. Thank you very much, Randy. I appreciate that. And then secondly, can you share some elements of what will change, or how your approach will change in your leasing and marketing strategies in the upcoming renewal cycle?

Randy Brown

Well, as I tried to say in my prepared remarks, you may recall we have made lots of changes this year, and many of the changes that we made were made in mid-stream, both personnel and management tools, to be able to do our job better. When we move into this year, I think the three significant pieces are all that has been settled. Second, this revenue yield management tool, that tool that I mentioned earlier, we will have that in place by January 1st . I think that will help us make more timely decisions and better decisions. We have the data, but it’s difficult to get to the data and these yield management tools are going to have that data percolate to the top, so the right people get the information at the right time and we can make better decisions. Third, which I really haven’t mentioned much, we’ve revamped all of our marketing collateral materials. Our materials were not particularly great in the past, we’ve had great input from our field, and we’ve really put together marketing materials that we think will make a big difference, and I did say three, but let me add one more. Four, we did roll out all new property websites in May, and May I don’t remember the exact number, but we were already something like 50% pre-leased, having those websites active with facebook and twitter and all the stuff that I really don’t understand fully, is going to be a great boon for our properties and our leasing effort.

Paula Poskon -- Robert W. Baird

All right, and then just one last question, and I’ll jump back in the queue. Remember earlier this year you had talked about the opportunity to grow the third party management business, I know in your prepared remarks you mentioned that you’ll be adding to coincide with the development properties you’re doing. What do you think the opportunity set is to more rapidly grow that piece of the business?

Randy Brown

You know, right now we have somewhere in the 20 to 25 range of management contracts today, and the great thing about those contracts is we must have done a fantastic job, because there really has not been any turnover. But we’ve not spent much time trying to grow that business. As I said in my prepared remarks, we finally have that area staffed appropriately, and we have a number of leads. I would be surprised if by the end of the year we don’t have something to announce. How big it can grow, I don’t really know. We are going to devote the resources to it. My – the goals that I set for our people running that business is I expect we ought to be able to double the number of management contracts in the next three years.

Paula Poskon -- Robert W. Baird

Very helpful, thank you very much.

Operator

Our next question comes from the line of Anthony Polon, please go ahead.

Anthony Polon

Hey, good afternoon guys. It’s actually Joe Dazio (ph) here. Question for Randy Brown. Looking at the reimbursements, both from the revenue and the expense side, it seems like those numbers not only (inaudible) but also there was a positive spread between the revenue and the actual expense. I wonder if you could just address that?

Randy Brown

On the P and L?

Anthony Polon

Yeah.

Randy Brown

Above the G & A line?

Anthony Polon

The P and L, it looks like there were $7.1 million, roughly, of expense reimbursements in revenue, and I think 6.2 in expenses.

Randy Brown

Oh, it’s the Hopkins reimbursement. Is that what you’re talking about?

Anthony Polon

Yeah, I thought it might have been, I just wanted to make sure where it came from. So that was all Hopkins, okay. And also just a question on a couple of specific assets. I’m wondering if you can comment on how this three in the Legacy portfolio, The Reserve at Athens, The Commons at Knoxville, and then Campus Lodge, where it seems like you lost a little bit of occupancy year over year, and then also if you could address Clayton Place, that was kind of flat-ish. I’m wondering kind of what the strategy was there, and going forward, if you can comment on that.

Randy Brown

Sure, I can. I’ll start with Knoxville. I do hesitate in telling the world about individual assets, just because I do think there is some competitive disadvantage in doing so. But for the assets that you noted, first at Tennessee; Tennessee was our problem. We, for a variety of reasons that I won’t go through, we had internet difficulties at Tennessee, and as you know that is the number one amenity that our students want at our communities. We had problems, we didn’t get it fixed in time. It is fixed now, but that is the primary component behind the loss of occupancy at Tennessee.

Second, Georgia; we mispriced the product early. Our people in the field kept telling us we were priced too high, we made the decision here that we were not, and we found out we were wrong. So we were trying to push too much on the rate side, and when we made the change, we made it too late. Now, with that said, obviously we have a nice increase in rate for our entire portfolio. On Clayton place, it is flat, it is disappointing, I said on a previous call some of the issues that Clayton State University is having, I don’t remember the exact data, but the number of freshman that came back for a sophomore year was a number that went down substantially. I don’t remember what the percentage was. And we’ve just not done a good job there. So we should do better at Clayton, but we’re not going to do 80. Not any time soon.

Anthony Polon

Okay, great. Thank you.

Operator

Our next question comes from the line of Michelle Ko with Bank of America. Please go ahead.

Michelle Ko -- Bank of America-Merrill Lynch

Hey, good results. I was just wondering if you could tell me, as you look ahead to the next academic year, what kind of rates you think you could push at that point? Given the success that you’ve had with this academic year.

Randy Churchey

I did listen to our competitor’s conference call, and I admit I was shocked that he stated a particular rate that he was targeting next year. So I wasn’t planning to do so, and I’m not. But if you look at their results, for this year, versus ours; you can see that total revenue increase for them and for us is about the same number. In my prepared remarks, I said that we should be able to achieve market leading results again next year, for the variety of reasons I mentioned in my prepared remarks. I still think that’s the case. We’re in the middle of the budgeting process, and we’re finding that our managers believe that the numbers he quoted were okay.

Michelle Ko -- Bank of America-Merrill Lynch

Okay, thank you. and then also, I was just wondering what the $85 million in proceeds from the asset sales that you anticipate, will you be using most of that to pay down debt, or are you actively looking for acquisitions? How confident are you in potentially doing some acquisitions, or what other developments do you have in mind?

Tom Trubiana

Michelle, this is Tom Trubiana. Indeed, you are aware of the fact that the investments we have for the University of Texas, Storr Center, and Johns Hopkins, so those are ongoing. We are currently underwriting on numerous assets, have non-binding letters of intent out on several, additionally, we are underwriting what I guess I would reclassify as pre-sale of new developments that are located adjacent to college campuses that I don’t think we can announce at this point in time. There’s a lot of activity and a lot of opportunity ahead.

Randy Churchey

And Michelle, going back to your questions, we will be retiring about $33 million of debt, from the sale of the nine properties that we announced on Monday.

Michelle Ko -- Bank of America-Merrill Lynch

Okay, great. Thank you, and then just lastly, as you move to the revenue management system, what’s your anticipation of how much that could help you in terms of operations? In terms of improvement? Is there a way to quantify it?

Randy Churchey

I’m not sure you can really quantify it. Remember, the system that we’re speaking too is really the yield management side, so it’s the revenue side, not really the expense side. We believe we have great systems in place on the expense side, so it’s all focused on the revenue side. I don’t know. I do know that each time during this year, when we implemented a new tool, the websites, the leasing monitoring information stuff, we saw increases in leasing activity from those, and better decisions. I would hope that given this data that we’re going to have that instances like Georgia and Tennessee, we’ll know about those earlier, we’ll be able to fix those, or adjust to the market appropriately and not have those types of items. So dollar wise I can’t do that, but I do think it will benefit us, again, this coming year.

Michelle Ko -- Bank of America-Merrill Lynch

Okay, great. Thank you.

Operator:

Our next question comes from the line of Karin Ford with KeyBanc.

Karin Ford – KeyBanc

Hi, good evening. I just wanted to ask about the final occupancy numbers for 2010/2011. If my notes are correct, it looks like you guys ended up just slightly lower than where we were talking about in July from an occupancy standpoint, but you pushed rents a little bit harder? Was that sort of a revenue management decision you did at the end of the leasing season, to just push rents a little bit harder? Or did leasing change at the end of the leasing season?

Randy Churchey

It was a combination of two things, Karin. It was that we did make the conscious decision to push rates a little harder, and that might have contributed a little bit back off the occupancy, but the second piece is really where I think that our yield management system is going to help us. The second is when you’re trying to fill those odd beds here and there, so for instance, you’ve got three people, you’ve assigned them to a four bedroom because you’re already out of threes. Well, they find a fourth person, usually that rate that you get on the fourth person is not nearly what you had in the past, so you make the conscious decision if you have a discount or not. Some cases we did, some cases we didn’t.

Karin Ford – KeyBanc

Okay. Next question is just your early thoughts on 2011/2012. I know you’re not going to give us sort of a rent growth target yet, but in the revenue management system and sort of in your mind, is there an occupancy target you have for next year?

Randy Churchey

It is premature for us to talk about that, but when you look at our Fall opening occupancy, either adjusted for the sales or not, you know we’re about 92%. The Clayton facility is 41%, and it drags the total down by about 2% points. So, I think when you think about our portfolio on a normalized basis, and I know you can’t just pull out one property, but I am, we’re at 94%. We think 97% is the right goal for our portfolio. I’m not saying we’re going to get there next year, but we think that is the right goal.

Karin Ford – KeyBanc

Okay, and this is sort of a historical question. Do you know what the highest rent growth the portfolio has been able to achieve in the past?

Randy Churchey

In this year, or in the past?

Karin Ford – KeyBanc

Just in the last, say, five or six years.

Randy Churchey

I’ll give you one data point. We did have two or three communities this year that had rental rate increases around 8%. That was our high, for this year.

Karin Ford – KeyBanc

Okay. I think Austin Wershbit (ph) has a question as well.

Austin Wershbit

Yes, hello. Turning to the UVA acquisition, and with the low relative occupancy at that address, could you just talk about the upside for the next leasing season there?

Randy Churchey

Sure, the UVA asset in ’08 and ’09 had 97% occupancy, and then this year it started at 91%. We think we know the reasons behind that decline this year, we think it has to do with pricing decisions that were made early on. What we found, or what we’ve discovered in our due diligence and so forth is that vacancies are focused on the 4 by 4’s and at UVA it is a market that leases early. So we believe that the pricing early on was not appropriate and they were not able to get that ground back in this pre-leasing season. We think that we’ll be able to overcome that in the years ahead, but maybe not this coming leasing season. Remember, we’re buying the property on November 1st , or October 27th . A lot of this early pre-leasing has happened. So we’re hoping that we haven’t missed that window, but it is possible that this coming pre-leasing season we could still be at this 90 or 91%.

Austin Wershbit

Okay, Thank you.

Operator:

(operator instructions) Our next question comes from the line of Alex Goldfar with Sandler O’Neill, please go ahead.

Alex Goldfar – Sandler O’Neill

Thank you, good afternoon. Just want to go back to the third party, the fee business. With all the capital, all the institutions that are trying to buy, it seems like everyone is sort of learning that having the right operator is critical. What are your thoughts on – would you guys increase the amount of third party management business that you do, or is there – do you want to keep it to a certain percent of the portfolio and do most of the property management for your own accounts? so owning your own assets rather than running someone else’s?

Randy Churchey

Well, as I read what our investors expect, it would be primarily in the business of owning assets, so that will always be our number one focus. But as I said in my prepared remarks, we do think that managing for others gives us a variety of advantages both just being in the business. One, you get to know more colleges, more universities campuses. Two, you do develop relationships with other people in the industry that might benefit us in some form or fashion going forward. So I don’t have a particular target of “I don’t want to exceed”, but it is difficult to manage at – well, with some people it’s difficult to manage at a university where you already own a product, because some might think there’s inherent conflict, even though I don’t believe there is. So I think that will always be a governor on how much third party management business that we’ll try to take, because I don’t want to ever be excluded from buying an asset from any campus.

Alex Goldfar – Sandler O’Neill

Okay. and then Randy, you say you’ve accomplished a lot this year between the dispositions and the general mood of the company. What do you think are the focal points that you’re going to address over the next year? Are there one or two specific things that you can point to that you want to tackle as your next challenge?

Randy Churchey

Well, thanks for that comment. Our team has accomplished a lot this year. Yeah, we’ve not gone through the formal goal setting process for next year, but I believe that we’ll always focus on making sure that our operations are able, have the tools and so far to be able to produce market leading results. Without such, everything else goes by the wayside. And then second, development acquisition front, we are extremely excited about the three development opportunities that we’ve discussed on the call, and the difficulty with development, as you know, is they don’t come online until 2012. So while we’re extremely excited about them, they don’t come online for awhile. But I hope and I believe that we should always be on the development side of the business, a limited amount, and we should always be delivering new product each year, whether it’s one, two, or three. So I think that will be the focus going forward. I don’t really think there’s any major shift that needs to occur.

Alex Goldfar – Sandler O’Neill

Okay, and then just finally, on the Storr’s deal, Tom, I think last time we spoke there was a parking structure or something that was outside of your control that needed to be accomplished for the deal to go through. Just sort of wondering where we stand, if everything is on track?

Tom Trubiana

Yes, Alex. That parking garage, first of all, is being funded by both state and federal grants that have already been made. That plus some interstructure through Storrs road maps about $20 million and we are actually what I believe are the final stages of negotiations with the town of Mansfield to make sure that all those improvements are there and delivered in time for delivery of the apartment community. So this is a project that the University of Connecticut and the town of Mansfield have been working on for almost ten years, and there’s a lot of positive momentum and the President of the University has offered his total support and anything he can do to ensure the success. This is a wonderful University that actually has not real downtown area for people to socialize or to gather, so there’s a lot of positive momentum, but indeed, before we go forward, we need to be sure that the inter structure and the parking facility are going to be delivered in conjunction and the same time as our community.

Alex Goldfar – Sandler O’Neill

But everything is on track for right now?

Tom Trubiana

Yes, very much so.

Alex Goldfar – Sandler O’Neill

Okay, thank you.

Operator:

Our next question comes from the line of Hendel St. Just with KBW. Please go ahead.

Hendel St. Just with KBW

Good evening guys. I want to turn to this development schedule for a second. On page 11 I was looking at your two owned projects, Texas and Storrs. Texas has a projected development cost of $104K per bed, and Storr is at $90K, well above third party pipeline, about 60, and I guess a lot higher than I would expect. Is there anything else that I’m missing here, to help me understand? I know Texas is a bit of a high rise project, but what other factors would have caused the cost to be so much higher?

Tom Turbiana

Well – this is Tom. First of all, the University of Texas, that’s a 16 story structure, with five stories of structured parking underneath the residential, so you’re clearly going to have a higher cost than with frame construction that you’d see in garden style apartments. With the University of Connecticut Storrs, what you’re seeing is the cost of the residential, the parking is separate from that, because it’s being funded by the grants, and our residents will pay some nominal fee for helping maintain that parking facility. And then the Johns Hopkins project being a 20 story structure, so you’re going to have higher unit cost than you would see with wood frame construction. But our timing really has been very good, because there has been some little development activity that the pricing per square foot is substantially less than it was two or three years ago, so all of that makes this make economic sense, and provide for nice returns on investment.

Hendel St. Just with KBW

Okay. I just want to shift gears for a second, and maybe this one is for you, Randy Churchey. Pro forma, this portfolio – so you’ll have four Place assets left, just curious on what you’re plans are long term with those. Do you plan on keeping them? No one of them has been a problem for you in the past, and you’ve talked about that, so I’m just curious what the thoughts are there.

Randy Churchey

Where we stand today, we plan on keeping those four assets. We’ve had on again/off again conversations about one of those assets. That doesn’t seem like it’s going to happen, so you know, and you can probably figure out which one it is, so we will probably be holding on to those four assets.

Hendel St. Just with KBW

Okay. And then last one, I’m just curious, which revenue management platform you guys will be implementing?

Randy Churchey

From what I’ve – I don’t know what our current system is, but –Eastside, and we are making revisions to it to accomplish the goals that we have.

Hendel St. Just with KBW

Okay, thank you.

Operator

Our next question comes from the line of Steve Swat, with Morgan Keegan. Please go ahead.

Steve Swat -- Morgan Keegan

Good afternoon. Randy, most of my questions have been answered already, but can you just provide a little more clarity on – it mentions in the release ‘certain expenses that didn’t occur in the third quarter for a timing reason that we’re going to have in the fourth quarter’, what are we talking about here? Is it small? Is it large?

Randy Churchey

It’s not a large amount. We did have some savings in our margining expense for Q3, we believe some of that, probably about $70,000 of about $117,000 savings for the quarter will probably come through in Q4. So there is some timing difference between the quarters, but I don’t think it’s going to be material.

Steve Swat, -- Morgan Keegan

Okay, and then did you recognize all of the expense reversals for Hopkins in Q3, or will there be anything more in Q4?

Randy Churchey

No, everything was recognized in Q3.

Steve Swat, -- Morgan Keegan

Okay, thanks very much.

Operator

Our next question is a follow up from the line of Michelle Ko, with Bank of America. Please go ahead.

Michelle Ko -- Bank of America

Hey, I was just curious. You know, given that some of those expenses here are fairly immaterial that are shifting in timing into Q4, you know, your Q3 results were better than what I expected, and I was just wondering if they were better than what you had expected, and if your full year guidance is now trending toward the upper end, or if it’s a little bit more on the conservative side at this point?

Randy Churchey

Well, you know, our actual results did come in a little bit better than we had thought. We’ve been talking all year long where we thought our operating expenses could possibly grow anywhere from 1 to 2.5%, that was certainly in our guidance for this year. We still believe there’s some possible growth there, we have experienced some growth in our payroll costs, just normal merit increase, Michelle, and those will continue, obviously. So for Q4, I think we’re still looking at our guidance growth for the quarter. Our properties have been operating very, very well, as we’ve mentioned. Last year we had almost a 5% reduction operating expenses, as I mentioned in our remarks, but there’s only so much that you can do, and at a point you have to start growing your expense base. So that’s where I think we may be.

Michelle Ko -- Bank of America

Okay, thanks very much.

Operator

Our next question comes from the line of Karin Ford with Keybanc. Please go ahead.

Karin Ford – KeyBanc

Hi, just wanted to followup on that question from Michelle on your guidance. I think your guidance, previously, did not anticipate getting any third party fees from Strasburg or Mansfield, and given that those two have started, and as you said, things were a little bit better operationally in Q3, was there anything offsetting that? Like maybe the dispositions, any ATM issuance or something, that caused you not to increase guidance?

Randy Churchey

No, you right. We did have some development fees come in during Q3 from those developments that you mentioned, those on campus. Mansfield, we didn’t recognize anything that was terribly odd, there really wasn’t a lot in the quarter for SUNY-EFS and Strasburg. So things did move around from that perspective, Karin, but given where we are, given the fact that we could experience some of the operating expense growth that I mentioned, you know, we’re comfortable with our guidance as I mentioned.

Karin Ford – KeyBanc

Okay, and just finally, what’s your expected initial yield on the University of Texas development?

Tom Turbiana

Karin, this is Tom. I’d rather talk in more general terms than to get specific about the University of Texas and for on campus ONE plan builds are targeted project yield is –could be 7.5 or greater, and I guess I’ll just say that this project fits that mold.

Karin Ford – KeyBanc

Okay, thanks very much.

Operator:

Thank you, and management, I show no further questions in queue at this time. Please continue with any closing remarks you may have.

Randy Churchey

Thank you for your interest in Education Realty Trust, and we’ll look towards updating you next quarter. Thank you.

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