Education Realty Trust, Inc. Q4 2007 Earnings Call Transcript

Education Realty Trust, Inc. (EDR)

Q4 2007 Earnings Call

February 27, 2008, 8:30am ET

Executives

Bartley Parker – Investor Relations

Paul Bower - President and Chief Executive Officer

Randy Brown - Chief Financial Officer

Craig Cardwell - President of our Management Subsidiary

Tom Trubiana - Chief Investment Officer

Analysts

Karin Ford – KeyBanc Capital Markets

Craig Melcher – Citigroup

Alexander Goldfarb – UBS

Joe Dazzio - JP Morgan

Paula Poskon – Robert W. Baird

Napoleon Overton – Morgan Keegan

[Matt Denshig – Urbane]

Presentation

Operator

Welcome to the Education Realty Trust Fourth Quarter Conference Call. [Operator Instructions] I would now like to turn the conference over to Bartley Parker with Investor Relations.

Bartley Parker

Good morning everyone. 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 the future results expressed or implied by these statements. Risk factors relating to the company’s results and managements 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 speak only of 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 Mr. Paul Bower, President and Chief Executive Officer.

Paul Bower

Good morning everyone. Joining me on the call today is Randy Brown our Chief Financial Officer. Also present today to answer any questions you may have are Craig Cardwell, President of our Management Subsidiary and Tom Trubiana, Chief Investment Officer.

First I’d like to provide an overview of the quarter and the full year 2007. I will then ask Randy to provide additional details and our guidance for 2008. We are pleased to have achieved organic FFO growth of 7% for the quarter and over 6% for the year. Our FFO of $0.88 per share for the full year 2007 was in the range of the financial guidance we communicated to you at the beginning of the year. Broadly speaking improved same community results increased third party management contracts and continued growth in our third party development business all contributed to the positive results.

Our improved same community results reflected focus on growing the top line through rate and occupancy management and improving operating margins primarily through turn cost containment at our owned and managed properties. Our fourth quarter results represent our fifth consecutive quarter of positive year over year NOI growth. We achieved positive operating leverage for the fourth quarter and full year which clearly demonstrates we are on the right track with our strategies.

Acquiring properties in 2007 was not a conscious focus given the continuing low level of cap rates and the uncertainty in the debt markets which have not allowed us to earn acceptable returns. We continue to be disciplined with respect to capital allocation and have instead focused on skillfully executing on our own development activities. The 600 bed University Village at UNC Greensboro a joint venture development we showed to investors in September is an excellent example of the success we achieved in this regard.

We expect our wholly owned development project in Southern Illinois University, which is progressing nicely toward a fall 2008 opening, to achieve similar results. The property’s club house is open with a model apartment inside for students to view. This has helped the initial lease up. The property is currently 43% pre-leased for the fall. As anticipated our initial success with the first phase of this project has given us more confidence in starting the second phase.

The lack of cap rate movement is no more evident than with the recent announcement of the acquisition of the student housing portfolio of GMH Communities. We believe the solid pricing achievement by GMH for a portfolio that many view to be at least comparable perhaps less attractive than our own from an investment perspective provides an important data point regarding cap rates for single property for portfolio acquisition.

As we announced earlier in the month we have assumed the management of 13 properties we owned by formerly leased to Place Properties Inc. We view this development as a positive for both parties. For Place terminating the lease makes the best strategic sense for them given the current financial results of the Properties and Place’s desire to focus more on development activities not on management. For EDR we simplify our structure by now managing all of our owned properties and are now better able to create value and enhance cash flow using our proven management platform.

We have already put our plan of improvements in motion. This month we began improving the relations with the universities these properties serve, upgraded the leasing systems to allow for easier more efficient selling, improved the management support systems and implemented upgraded amenities such as internet functionality. We expect to be successful in improving the 13 Place Properties as we demonstrated with the repositioning of the reserve on South College at Auburn, College Grove at Middle Tennessee State, The College Inn at NC State University and many other properties. The Place Properties require a similar plan of action that will result in substantial growth in NOI.

Let me point out that while the current annual NOI from the 13 Place Properties falls short of the annual lease payment we previously received from Place the $5.8 million lease termination fee is more than three times this annual shortfall. This provides us ample time to execute a thoughtful plan to improve the NOI and therefore create positive shareholder value. With respect to third party management services we had a strong year with nine new management contracts at six universities totaling approximately 5,900 beds. These contracts were new relationships which we believe strongly reflect the growth of our reputation and our focus on customer service.

Developing student housing communities for others is always a key focus of the company given the profitable revenue streams these projects provide. Two thousand seven was a solid year for us in terms of development for others as we earned record third party development fees of $5.4 million on eight projects up 43% from $3.8 million in 2006. Since the year 2000 we have executed on the development of over $1 billion of new construction.

With that overview on the key drivers of our business performance let me now turn it over to Randy to provide some additional detail on our reported financial results and guidance for next year.

Randy Brown

Good morning everyone. As Paul mentioned we are pleased with our results for the fourth quarter and full year 2007. Starting with our revenue let me highlight some points of interest in our results. Excluding operating reimbursements overall revenue growth was 4.1% for the fourth quarter of 2007 was driven by improved same community operating results to continued growth in our third party fees. Same community revenue increased 3.5% for the fourth quarter of 2007 as compared to the fourth quarter of 2006 primarily driven by a 3.1% increase in rental rates.

The growth in our third party fees is the result of our ability to win new management development contracts. The high growth rates in our third party management and third party development fees have influenced our mix of revenues which now comprise a total of 9% of revenues as compared to 7% in 2006. Over time we expect the contribution of fees from third parties to our overall revenue mix to continue in this range.

Our same community operating expenses in the fourth quarter 2007 reflected a 1.9% growth over the same period last year. While we continue to focus on minimizing our operating expenses the fourth quarter of 2007 did benefit from approximately $229,000 less in property taxes as compared to the fourth quarter 2006. On appeal the higher fourth quarter 2006 taxes were refunded to us in the first quarter 2007 which may make the growth in our first quarter 2008 expenses somewhat skewed in comparison.

Our G&A expense for the fourth quarter 2007 increased approximately $500,000 on a year over year basis as a result of our investment in the company’s infrastructure both in systems and people which we believe will pay dividends over time with more efficient and administrative property management results. Our same community net operating income increased 4.7% for the fourth quarter 2007 as compared to the prior year led by our solid growth in revenue as I discussed.

Our capital structure remains very favorable with respect to our ability to execute on our growth plans. We had total debt of approximately $431 million which amounts to 53% of gross assets at December 31, 2007. This is improved from 55% of gross assets at the end of 2006. While the debt markets continue to be volatile there continues to be the availability of financing for student housing communities from Fannie and Freddie Mac at very favorable pricing levels.

Given the low balance outstanding on our $100 million line of credit we have ample short term funding available. Additionally we have the ability to tap 13 unencumbered properties for the total gross asset value of $216 million for additional financing if needed and we have cash and cash equivalents totaling $4 million. Lastly, as others increasingly recognize the attractiveness of EDR’s position in the student housing industry we expect to be able to engage in joint venture opportunities as we have in the past to provide additional resources for potential growth.

Turning to our initial earnings guidance for 2008 based upon our current estimates FFO per share and unit is expected to be in the range of $1.02 to $1.07 for the full year ended December 31, 2008. This guidance includes a net positive impact in 2008 of $0.12 to $0.13 per share in connection with the Place transaction. The impact encompasses the addition of the $5.8 million lease termination payment in the first quarter of 2008, the subtraction of the lease revenue that was to be received from place under the former lease, the addition of net operating income from the company’s use of its own management subsidiary to manage the properties and the subtraction of costs related to the additional staffing needed to manage the properties.

A complete reconciliation of these changes can be seen in the FFO guidance reconciliation table in our earnings statement. We provide this detail in order to assist investors and analysts in development an estimate of funds from operations for the company that is more directly comparable to the company’s fund from operations for the full year ended December 31, 2007. Our 2008 earnings guidance is further based upon the following assumptions; same community rev path growth of 3% or 4% for the fall 2008 lease year, full year expense growth of 2% to 3% and full year NOI growth of 3% to 6%.

NOI from the fall 2008 opening of the reserve at Saluki Point at Southern Illinois University in Carbondale ranging between $600,000 and $700,000 in related one time pre-opening expense in the range of $100,000 to $200,000, third party development and management fees ranging between $8.5 and $9.5 million a year over year corporate G&A expense growth of 3.5% to 4.5% excluding the incremental growth for the Place portfolio and 6% to 7% including the integration of Place.

Interest expense ranging from $26 to $27 million net of capitalized interest ranging between $500,000 to $1 million. Finally, while we continue to work on growing our business and creating value for our shareholders in an effort to be conservative our guidance does not include the assumption of additional NOI from future acquisitions, any other new developments or new third party management contracts.

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

Paul Bower

In looking at 2008 and beyond we expect several initiatives to contribute toward increased shareholder value. We intend to continue to improve the company’s operating margins through maximization of rev path and ongoing control of operating expenses. We believe we can increase revenue and improve our overall profitability through the pursuit of profitable third party management business and over the longer term get the Place portfolio to perform at levels consistent with at least the average of the balance of EDR portfolio.

I am confident that our successful completion of development projects will continue to enable the company to leverage our expertise for further third party development fees and management opportunities. We continue to pursue on campus developments using our capital resources in place of the traditional tax exempt bond finance model. The student housing industry has solid and consistent operating characteristics throughout a wide range of economic cycles based on historical performance.

The demand for post secondary education is driven by the opportunity for improvement each generation seeks. Aging infrastructure of college housing combined with this drive for improvement has and should continue to insulate this industry from some of the Ebb and Flow of economic cycles. We believe this will continue to benefit our company in the coming years as the demand for on campus and off campus housing continues.

A quick look at occupancy shows that the owned portfolio was 95.6% occupied at December 31, 2007. This is consistent with occupancy at this time last year and right where you want to be going into the second half of the academic year. The managed portfolio was 86.7% occupied and the Place portfolio had an 84.9% occupancy which again confirms the opportunity for improvement this year and beyond.

The status of leasing for the 2008-2009 cycle now about one third of the way through lease up season has the following result. On a same community basis as of February 25, 2008, the company’s pace of pre-leasing activity for the fall is 16% ahead of last year at the same time, with 42.8% of the company’s home beds pre-leased for the fall versus 36.8% one year ago. Pre-leasing activity for the Place portfolio is 27.9% compared with 26.3% one year ago. We are pleased with these results to date and confident it will get us to the desired goal come August.

We thank you for your interest and attention and now we welcome the opportunity to answer any questions you may have.

Question & Answer Session

Operator

[Operator Instructions] The first question comes from the line of Karin Ford from KeyBanc Capital Markets.

Karin Ford – KeyBanc Capital Markets

First question is on the pre-lease for ’08-’09 school year. What type of rent increases are you getting on the pre-leasing you’ve done to date?

Craig Cardwell

We are getting right in the 3% to 4% range. We have some communities that are a little bit above that and some that are below under the range. In the 3% to 4% range.

Karin Ford – KeyBanc Capital Markets

Are you pushing up your rent increases as you’ve been moving through the leasing season?

Craig Cardwell

That is always the plan wherever we can do that.

Karin Ford – KeyBanc Capital Markets

Second question is on Saluki Point. You mentioned that you are getting more confidence that you may want to start phase two there. If you were going to start that what would be the timing on that and how would the company plan to fund a phase two development?

Tom Trubiana

Indeed leasing has actually exceeded our expectations and while we have not made a final definitive decision, I would anticipate in the next 30 to 60 days assuming leasing continues as well as it has been we’ll be making that decision. At this point in time the intent would be to fund it from the company’s current credit line.

Karin Ford – KeyBanc Capital Markets

Would you consider doing the development in a JV and I know you mentioned you are considering some JV so you have some active discussions on JV’s for either development or on existing assets?

Tom Trubiana

We have indeed had dialogue with potential JV partners but there has been no decision made at this point in time as to specifically how we would fund this particular development.

Karin Ford – KeyBanc Capital Markets

A final question on the Place portfolio, given the level of leasing there and occupancy is there any improvement given where we are in the leasing season today that you think you’ll be able to get for the ’08-’09 school year or are we really a year away from you guys being able to have a affect on the Place portfolio?

Craig Cardwell

Two points to be made; one we are certainly going to do all that we can to have the greatest affect for the fall of ’08. However, we expect that the best results will be seen in the fall of ’09.

Karin Ford – KeyBanc Capital Markets

What do you think the growth expectations could be for ’09 school year?

Craig Cardwell

We certainly think that they will exceed the recent history under the Place lease situation. We definitely expect to see improvement on that.

Karin Ford – KeyBanc Capital Markets

Do you have an NOI growth estimate or an occupancy target or anything like that?

Craig Cardwell

No, we do expect occupancy to increase. There’s no question about that, we are not here right now to peg that number in February.

Operator

The next question comes from the line of Craig Melcher with Citigroup.

Craig Melcher – Citigroup

What are the average rents on the Place portfolio in comparison to your existing assets?

Randy Brown

At the end of December they were running about 10% less than what EDR’s portfolio is.

Craig Melcher – Citigroup

Do you think that is reflective of asset quality and location or do you think you will be able to close a part of or all of that gap over time?

Craig Cardwell

We would anticipate that over the next couple of years, part of the reason for the strategic change in terminating the Place lease, certainly agreed by both sides, is that we think there is good solid upside in the portfolio, both in occupancy and in rate.

Craig Melcher – Citigroup

How is the performance on an NOI basis or revenue however you may have it, of the Place assets since Place has been managing them for the last two years?

Craig Cardwell

I think the best way to explain that is that our margin for the owned portfolio in EDR is around 52%-53% and it’s around 48% for Place. If one looked at a combination over time rental rate growth, occupancy growth and margin improvement I think that tells a very good story.

Craig Melcher – Citigroup

Did you look at the GMA transaction at all or did you not think you were in a position to participate in that?

Randy Brown

We look at that back in August of ’06 when it was publicly marketed but not more recently.

Operator

The next question comes from the line of Alexander Goldfarb with UBS.

Alexander Goldfarb – UBS

If you could go back on the Place portfolio. Could you outline what your game plan is? Is there an individual in charge of making sure that the improvements are met by the ’09 season? If you could give a little more color about how you’re tackling the improvement of those properties?

Craig Cardwell

We have a complete plan in place which includes overhauling the leasing systems, which in the mechanics of that, which has already been put in place. In many cases there will be a certain amount of re-branding, there will be certain amount of not unusual capital but necessary capital to enhance things. There are things, for instance, internet functionality that we didn’t think was up to snub. All the kids need these days is a bathroom and internet. You’ve got to have both of those and we think that’s the case where it will be easy to fix some things and help move things forward.

In terms of who is in charge, we have three highly seasoned regional managers working with that portfolio and I’m directly overseeing the improvement with those folks. We have a real good team; we have an additional corporate marking person that is assigned specifically to that portfolio at this time. We have a very intensive effort underway. We are very excited about it.

Alexander Goldfarb – UBS

Are there incentives directly tied to the performance of those portfolios for the individuals?

Craig Cardwell

No.

Alexander Goldfarb – UBS

So there are no additional incentives?

Craig Cardwell

Correct.

Alexander Goldfarb – UBS

Going back to the financing; can you give us a little more color on what you are seeing as far as interest from either, obviously Fannie and Freddie have always been there, from life companies or other sorts of lenders?

Randy Brown

As you mentioned Fannie and Freddie is still very active. We are actually in negotiations with Freddie right now on a small refinancing that we have coming up at the end of this quarter. The life companies are active. A lot of the major money centers, CNBS, Activia is pretty much shut down for now but oddly enough there are a few smaller lenders that really didn’t have a lot of CNBS debt on the balance sheet so they have been active and we have met with a number of them as well. I’ve been surprised of the indicative term sheets that I’ve seen.

The amount of leverage that they’ve offered has come down but of course we’ve never been too focused on ratcheting up leverage on first mortgage and refinancing anyway. Some of their debt service coverage tests have tightened up a bit. There spreads have obviously widened but again that’s been offset or mitigated somewhat and a fair amount by the drop in the treasuries. There are several sources to look to, to refinance things but again Freddie and Fannie has been very active and we don’t know of any reason why they would change in the near term.

Alexander Goldfarb – UBS

Can you give us color on what the terms are, as far as interest coverage, spread, LTV’s etcetera?

Randy Brown

On the traditional CBNS that I’ve talked to the debt service curvages have dropped to 1.25 times. A lot of the interest only debt has dried up so a lot of it is now amortizing. Freddie is still offering, as long as you have reasonable leverage requests, they are still offering interest only loans. We’ve had that as an available offer to us as well.

Alexander Goldfarb – UBS

Clearly this year, there has been a lot of attention with student house, there have been obviously two investor filings with UPC deal. Now there are a lot of folks who seem to be looking at student housing. Are you seeing a lot of new faces looking at student housing or are these people who are priced out over the past few years who are now coming back and taking a look at student housing?

Tom Trubiana

I would say it’s some of both. Some have been interested for some extended period and there is new interest.

Paul Bower

We have seen where people have gone to the side lines earlier in the year that are now getting back in. That’s been very encouraging to us.

Operator

The next question comes from the line of Tony Paolone with JP Morgan.

Joe Dazzio - JP Morgan

A couple questions, first on Place, could you talk about the criteria for needing the extra $200,000 lease termination fee?

Tom Trubiana

There’s a lease hurdle to meet and an average rent. It’s a combination of those two things. I don’t remember what the specific numbers are right now. We are concerned because that school is building new on campus housing right now which should open for the fall focused primarily on freshmen. We have a high percentage of freshmen at the Place Property. We were doubly concerned that it would have a struggle this fall. We put a certain hurdle that said if Place coincidentally had a different viewpoint of it. We said, okay if we don’t achieve this certain level than we need additional compensation.

Joe Dazzio - JP Morgan

It’s focused on one specific asset?

Tom Trubiana

Yes, just that asset.

Joe Dazzio - JP Morgan

Another question on Place, if you guys had owned for a couple of quarters now where do you think pre-leasing should be right now?

Craig Cardwell

I think that’s kind of impossible to speculate on what it might have been. Obviously our ego would say that we would like to think it would be better but we can’t really assert that for sure.

Joe Dazzio - JP Morgan

Let me ask another way, is the lease up period materially different from your own portfolio.

Craig Cardwell

No. It generally starts about November because most of these are Southern properties, it starts November and kind of runs all the way through June or July. Each of the sub markets is just a little bit different, some lease a little earlier some a little later just like the balance of our owned portfolio.

Joe Dazzio - JP Morgan

In terms of the owned portfolio the pre-leasing look pretty good, is there any assets where you are notably ahead or behind expectations?

Craig Cardwell

I’d say on balance it’s all generally ahead. I’d say one that probably concerns us a little bit is Michigan because of the Michigan economy. That wouldn’t be a surprise to anybody. We’re not in any kind of trouble there but it’s not moving ahead as fast as we would like, compared to some of the other communities. Ones we’ve commented on in the past for instance Texas Tech is ahead of last year. We are not seeing any danger signs in core owned portfolio.

Joe Dazzio - JP Morgan

Last question on guidance, in bettering the expense growth do you know what the turn cost number is in there and also what the capex number looks like?

Randy Brown

The turn cost is approximately what we experienced for ’07. It’s in the range of 145 to 147 per bed and capex is about 150 we expect per bed.

Operator

The next question comes from the line of Paula Poskon with Robert W. Baird.

Paula Poskon – Robert W. Baird

Regarding a question on your third party fees of $8.5 to $9.5 million in guidance, I believe your prepared commentary you said that assumes no new management contracts. Is that range what you would consider the full potential on an annualized basis of the existing contracts or is there some cadence of ramp of through 2008?

Tom Trubiana

No I don’t think there’s any ramp up involved. I think there’s just what you normally would consider is the third party management fees being driven by year over year revenue growth at those managed properties.

Paula Poskon – Robert W. Baird

Given that you have a robust year in signing new contract in 2007 do you think it’s reasonable to assume that you are not going to have new contracts in ’08 or are you not pursuing that strategy?

Tom Trubiana

No, we are obviously pursuing it both on the development side as well as management contracts but since we’ve not announced any new management contracts we felt it was best to not include that type of incremental growth in the guidance at this point.

Paula Poskon – Robert W. Baird

Lastly, I realize this is a question for a little further out but looking at the debt maturity not so bad in 2008 but 2009 it gets to be a big number. How are you thinking about that as you head into the middle of this year?

Randy Brown

We’ve actually been looking at it and talking with several of our investment bank advisors on debt strategy to spread that large amount over several different traunches once it comes up. Looking at the best financing techniques to ride the overall lowest cost of debt that we can possibly achieve. You are right we do have a little bit of time but we have been looking at that since early fourth quarter of last year.

Operator

The next question comes from the line of Nap Overton with Morgan Keegan.

Nap Overton – Morgan Keegan

One the Place Properties, apparently those properties NOI has fallen off over the last couple of years since you acquired them under Place’s management. To what do you attribute in general that decline over the last couple of years and NOI those properties generate?

Craig Cardwell

I think it goes back to what Paul commented on earlier we think that the focus of the operator was probably a little bit more on development than on core management. This was a third party program for them and we expected to see certain kinds of results. I think they expected to see certain kinds of results or they would have never entered into the agreement to begin with. I think things just didn’t pan out for them. We don’t see anything that at core is a problem with either the assets or the markets.

Nap Overton – Morgan Keegan

Are there specific things that you see that you can do other than the general approach to the lease up that can be changed to recoup some of that “shortfall”?

Craig Cardwell

Yes, I think those things were first commented on once again by Paul that basically aside from the leasing mechanics there are things like the internet, there’s bringing the amenities program up to snuff to making it a first class like we have at other communities. There’s a university relationship component that we think was not really capitalized on. It’s all three of those that will make a difference and it’s helped us make a difference in other communities.

Nap Overton – Morgan Keegan

Is there deferred maintenance or capital needs at those properties that you would be more likely to do something about as an owner/operator than you were as a leasing them to Place?

Craig Cardwell

No, very clear evidence of that is actually we had an assigned asset manager specific for that portfolio since we commenced the lease program. We were very focused on maintaining the core of the capital assets and made sure that we put money into, particularly the exterior of the product and making sure that the assets were overall well maintained. We don’t see any real deferred maintenance we see things that I’d say are amenity deferrals and a lot of things that would be hot buttons for the kids that may not have been attended to.

Nap Overton – Morgan Keegan

This is more of a modeling question, would it be correct to, in terms of modeling out the quarters this year the lease payments were fairly steady across the four quarter of the year whereas you’ve got the dip in Q3 from the Place Properties, is that correct, is your third quarter likely look much worse this year than it did last year because now you own the property as opposed to getting a steady lease payment?

Randy Brown

Yes, if you are looking to model that out I would use the same trend that the EDR portfolio has reflected over the historical quarters. I don’t know of any reason why the NOI would differ or the gross margins would differ for Place other than the fact that their margins are lower than what ours is?

Nap Overton – Morgan Keegan

Have you considered providing any historical revenue operating expense and NOI data for the Place portfolio since that is such a substantial asset now being managed?

Randy Brown

You can look to the past two 10-K’s, and the 10-K that is coming out shortly that will have an audit report in the back of it for the Place Properties. That will give you an idea of how things have run in the past.

Nap Overton – Morgan Keegan

The capital cost for Carbondale Phase One and potential Phase Two, what are the estimated costs there for investments?

Paul Bower

The debt that has been placed on that with Regents Bank is 120 basis points over 30 day libor and on the equity side the project yields we are looking at on this is, right now, with the rental increases we’ve been able to put in place the project yield is over an eight.

Randy Brown

Are you looking at the total development cost too?

Nap Overton – Morgan Keegan

Yes I am.

Paul Bower

The total development cost on the project is $21.9 million which comes out to be a little bit north of $41,000 a bed.

Nap Overton – Morgan Keegan

There’s a phase two to that project?

Tom Trubiana

Yes, when the PUD was approved we could build up to an additional 288 additional beds on the second phase which we currently own.

Nap Overton – Morgan Keegan

Would it be a reasonable general expectation to announce additional on balance sheet developments for the 2009-2010 academic year sometime in the next six to nine months?

Randy Brown

Clearly it’s a focus of the company from an investment standpoint to be working both off campus an on campus development opportunities. At this point in time and keeping with the company’s policy until we have a definitive agreement on something that’s material we don’t release that information.

Nap Overton – Morgan Keegan

One much bigger picture question, the shortfall from the Place Properties NOI to the lease payment does make it look like, when I think about 2009 that FFO and FAD per share would fall a bit short of the dividend and both ’08 and ’09 excluding the non recurring lease termination fee income. Could you remind us of what your dividend policy is and what might cause you to revisit the level of the distribution?

Tom Trubiana

Our dividend policy at present is $0.82 for the year. You are correct, this is a strange year in that we get the entire termination fee booked in one year as opposed to spread over the remaining three years of the lease. There will be somewhat of a setback in FFO in 2009 compared to 2008.

Randy Brown

As you know that’s a decision of the Board makes in the future and we really don’t speculate on the Board’s decisions in future years like that as it relates to dividends.

Nap Overton – Morgan Keegan

As you think about a dividend policy, what payout ratio of cash flow available for distribution should a student housing reap be at? What’s a comfortable payout ratio, long term over a five year period?

Randy Brown

You would know better than I would on something like that. I know where the reap has been historically, I know where we’ve been historically; obviously we would like to be under 100% on the payout ratio.

Operator

Your last question comes from the line of [Matt Denshig] with [Urbane].

[Matt Denshig – Urbane]

Looking over your results your pre leasing really stood out to me and I’m curious, was pre leasing up 6% and rent increases up 3% plus have there been any organizational changes? Have you changed your approach? What are you doing right to get to that 6% increase?

Craig Cardwell

I think its just part of the maturation of the properties. We’ve said virtually forever going back to the beginning that the organic nature of these properties is the longer you run them, the better you run them the better connection that you have with the university and the continuity of services over time produces a lot of referrals, produces more renewals, all of that kind of feeds on itself year over year. I think you are seeing the incremental step of that year over year.

Operator

That was the last question; I’d like to turn it over to management.

Paul Bower

Once again, thank you for your interest and support shown to EDR. You have a management team unequaled in the industry with over 1,000 dedicated student housing professionals out there working hard to make this company successful and financially rewarding to our shareholders. We expect 2008 to be a continuation of the progress shown over the last five quarters. Thank you and have a good day.

Operator

Ladies and gentlemen this does conclude the Education Realty Trust Fourth Quarter Conference Call you may now disconnect.

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