Education Realty Trust's (EDR) CEO Randy Churchey on Q4 2015 Results - Earnings Call Transcript

| About: EdR (EDR)

Education Realty Trust, Inc. (NYSE:EDR)

Q4 2015 Earnings Conference Call

February 22, 2016 10:00 AM ET

Executives

Drew Koester - SVP, Capital Markets and IR

Randy Churchey - Chairman and CEO

Chris Richards - EVP and COO

Tom Trubiana - President

Bill Brewer - EVP and CFO

Analysts

Austin Wurschmidt - KeyBanc

Jana Galan - Bank of America Merrill Lynch

Alexander Goldfarb - Sandler O'Neill

Ryan Meliker - Canaccord Genuity

Drew Babin - Robert W. Baird

Wes Golladay - RBC Capital Markets

Operator

Greetings and welcome to the EDR Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Drew Koester, Senior Vice President of Capital Markets and Investor Relations. Thank you sir, you may begin.

Drew Koester

Thank you and good morning. We would like to remind you that during today's call, Management's prepared remarks and answers to your questions may contain forward looking statements. These statements are based upon current views and expectations. Such statements are subject to risks and uncertainties and other factors that may cause the actual results to differ materially from those discussed today. Examples of forward-looking statements, may include those related to revenue, operating income, financial guidance, as well as non-GAAP financial measures.

Risk factors relating to the Company's results and Management's statements are detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 and other filings with the Securities and Exchange Commission that are available on our Web site.

Forward-looking statements refer only to expectations as of the date on which they are made. EdR 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, Chairman and Chief Executive Officer. Randy?

Randy Churchey

Good morning. Thank you for joining us for the EdR fourth quarter 2015 earnings call. As we complete the sixth year since this management team took over, I'd like to take a few moments to reflect on our achievements since the beginning of 2010.

During the past six years, we have transformed the company, by reducing debt to gross assets from 43% to 28%, selling 63% of the community's debt we owned at the beginning of 2010, delivered $720 million of new developments; acquired $830 million of new communities, and increased our percentage of NOI derived from on-campus assets from 1% to 28%. In so doing, we have crafted a best-in-class portfolio of student housing assets, and a strong conservative balance sheet.

We were able to execute on these strategic objectives, while still producing outstanding returns for our shareholders. For the six years ended December 31, 2015, our total shareholder return was 224%, ranking us first in student housing, and 14th out of the 108 are in the top 13% of all REITs in existence during this time period. A great reward for our shareholders, and a truly rewarding experience for our management team and our partners.

2015 was another successful year for EdR. Our operations team produced another year of industry leading leasing results in outstanding same community NOI growth. Our development team continued creating net asset value, by successfully delivering our 2015 developments, and increasing our pipeline of active developments for 2016 and 2017 deliveries, and we took significant steps to position the balance sheet, to take advantage of the significant growth opportunity that we are seeing. All in all, an outstanding year.

Next, I will talk about internal growth; strong revenue growth and consistent expense management, drove same community NOI growth of nearly 6% for the year, and with industry-leading leasing results Chris' team produced this fall, including opening occupancy of 97% and expected total rental revenue growth of 3.8%, we expect solid internal growth for the first seven months of 2016.

In addition, we continue to see strong fundamentals in the student housing industry, with the volume of 2016 new housing supply in our markets being forecasted to decline 20% from 2015 levels. Our favorable 2016, 2017 pre-leasing to-date, is evidence of this positive new housing supply trend, as well as our best in class portfolio of student housing assets.

As a reminder, our portfolio boasts the following characteristics; 84% of our NOI is from the pedestrian to campus and on-campus assets with 28% of NOI from on-campus assets, median distance from campus one-tenth of a mile. Average enrollment of universities served, over 27,000. Average age of our community, seven years. And the average monthly rental rate of $730 per bed.

We believe the combination of favorable industry fundamentals, our best-in-class portfolio of student housing assets and property operations team, will continue to produce above market NOI growth.

Next, our external growth; we have significant embedded external growth with our 2015 development and acquisition activity, growing our collegian housing assets by 14%; and our active development pipeline of 2016 and 2017 deliveries, representing another 20% growth. Importantly, 56% of our active developments are located on-campus, and 82% are either on-campus or pedestrian to campus. Furthermore, as Tom will elaborate, we continue to see an abundance of opportunities for both on and off campus developments.

Lastly, I'd comment about valuation; for the last six months, the student housing industry has seen two large portfolios trade. The first was Campus Crest communities, and the second was university homes.

Although EdR did not purchase either portfolio for different reasons, the transactions are good indicators of market valuations. Based on analyst reports, most believe the Campus Crest portfolio, one that focused on second tier markets that were further from campus, traded at an economic cap rate, just over 6%. And the University House portfolio, which is more comparable to ours, but does not include meaningful on-campus assets, traded in the low five economic cap range. We, as others in the industry, feel these are good REIT proves to assess valuations, and current market cap rates for student housing assets.

In closing, during the time of market volatility and uncertainty regarding economic conditions, the recession resistant defensive nature of student housing stands out. Over the last 10 years, the student housing industry has produced 44 consecutive quarters of same community revenue growth, averaging 3.1%. This steady operating characteristic, along with our conservative balance sheet, provides a nice shelter in these uncertain times.

Let me reiterate; the outlook for the student housing industry and our company remains very positive. Annual enrolment growth averaging 1.2% per year through 2022, declining near term new supply, and the monetization of student housing taking place across the country, provides a favorable macro environment.

The opportunities for EdR to create meaningful shareholder value from both internal and external growth are outstanding. We have the team, along with the financial resources, to seize upon industry opportunities, to continue growing the company in the years ahead.

Now Chris will discuss property operations.

Chris Richards

Thank you, Randy. I am proud of the operating team's performance in 2015. We produced strong same community NOI growth for the year at 5.8%, delivered another year of industry-leading leasing results, began the 2015-2016 lease term, 97% occupied with estimated revenue growth of 3.8%, and opened over 2,900 new beds at the six communities we delivered in August.

While we are proud of the 2015 accomplishments, the team shifted its focus to the 2016-2017 leasing cycle before the dust even settled. We are well into the sales season and leasing velocity at our same communities is strong. We are currently 58.4% pre-leased for the fall, which is 490 bps ahead of this time last year. Our continued focus on customer service and resident satisfaction, along with our detailed marketing program and the visibility to market information through our pilot systems, have put us in a great position to take advantage of market conditions and maximize leasing results.

Please keep in mind, that as we have discussed in the past, our same community portfolio opened last fall, near our maximized occupancy of 97%. As such, we expect to see the favorable leasing velocity to prior year of 490 bps to dissipate over the remainder of the leasing cycle.

Based on our current progress and market conditions, we anticipate opening the 2016-2017 lease terms, with revenue growth in the range of 2.5% to 3.5%, with occupancy consistent to prior year.

Note, our beds at the University of Kentucky, including 4,600 same community beds and 1,140 new community beds delivering in 2016, have again been excluded from the same community pre-leasing analysis in the financial supplement, since the on-campus assignment process will not be completed until May.

Currently, we are 88% applied for the fall, on-par with the prior year, and our beds are clearly the choice of the U.K. student. In addition, the university application velocity, as reported by enrolment management, is at 11% over prior year, which speaks volume for demand.

Our new communities, which include our 16 developments at the University of Mississippi and at Virginia Tech, as well as our 15 acquisitions at University of Colorado, Boulder, and the University of Tennessee, are meeting our expectations with 58.2% of the beds leased for fall.

Turning to supply; as we reported in our third quarter earnings call, the volume of new supply being added to EdR markets for fall 2016, is down over 20% from the 2015 level. This is a significant trend, and the second consecutive year, our markets have seen a decline in new supply. In addition, the majority of new supply will be further from campus in our communities.

In conclusion, our dedicated operations teams are hard at work to produce yet another year of market leading leasing results. A steady increase in demand, a decrease in volume of supply over prior year, and increased velocity in leasing trends, and early strength in rate growth, provides a nice backdrop for the 2016-2017 leasing cycle.

I will now pass the call to Tom.

Tom Trubiana

Thank you, Chris. Good morning. On the heels of a successful 2015, during which we grew collegian housing assets by 14%, with the 2015 delivery of 2,949 beds at the Universities of Kentucky, Georgia, Connecticut and Louisville, totaling $208 million, and $58 million of acquisitions.

We have recently added over $100 million of new investments, to our active development pipeline. Please refer to page 18 of our supplemental. In January 2016, we began construction on two new developments; the first, Skyview, is a $90 million community, pedestrian to Michigan State University. EdR will be 90% owner, and will manage the 824 bed community that is scheduled to open in 2017. The second, The Local, is a $30 million community pedestrian to Texas State University. EdR will be 80% owner, and will manage the 304 bed community, that is also scheduled to open in 2017.

In February 2016, the company announced that the Finance Buildings and Properties Buildings of Cornell University's Board of Trustees, recently approved EdR to develop, finance, and construct on-campus replacement housing, favored for graduate and professional students. EdR will also manage the more than $80 million community, upon its targeted summer 2018 completion.

Progress continues on the Landmark public-private partnership at the University of Kentucky, which is systematically replacing outdated residence halls with modern state-of-the-art live-learn communities. With the delivery of 1,610 beds this past August, EdR now has 10 U.K. operating communities, with 4,592 beds that opened this lease term at 100% occupancy.

In addition to the 1,141 bed 2016 U.K. deliveries, Limestone Park I and II, and the 771 bed 2017 delivery of the university flats; the University of Kentucky trustees recently approved the next phase of EdR's on-campus housing revitalization, Lewis Hall for 2017 delivery. Lewis Hall is a five story, 346 bed state-of-the-art honors college, dedicated to the U.K. Honors program. With the Lewis Hall development, the total number of U.K. beds delivered in construction or currently under development is 6,850.

We have also recently begun the process of exploring an additional delivery for 2018 with U.K. Our 2016 developments at the Universities of Kentucky, Mississippi and Virginia Tech, are all progressing as anticipated, on-budget and on-track for their delivery in August.

In total, EdR has over $400 million of active development projects at the Universities of Mississippi, Kentucky, Boise State, Michigan State, Texas State and Virginia Tech, which represent a 20% increase in collegian housing assets over December 2015. All announced developments have a target first year economic yield in the low 7s.

For EdR, on-campus developments under the one plan, remain the most exciting eternal growth opportunity. By the end of 2017, our portfolio will include approximately $667 million of ONE Plan assets at cost.

We continue to see growth in the number of universities, interested in P3 financing to solve their housing needs, as more universities see the benefits of these successful partnerships. The need to replace older on-campus housing, and demands on institutional funds for academic and support service initiatives, combined with the decline in state support for higher education, is driving the interest in P3s. Preserving limited debt capacity for academic and research initiatives, is the primary motive for universities seeking equity financing for their housing needs.

We are working on numerous additional development opportunities, both on-campus and pedestrian-to-campus, to further grow our development pipeline. EdR is currently actively working 16 formal university procurements. The depth of on-campus development market has never been greater. Additionally, we are in various stages of pursuit on numerous off-campus developments for 2018 delivery, and possibly still 2017 delivery. As been our policy, we will announced these developments when we are relatively certain that they are moving forward for delivery.

Now turning to acquisitions and dispositions; the level of institutional demand for student housing assets continues to grow, with several new sources of institutional equity, committing capital to the student housing sector. The cap rate for core product, pedestrian-to-tier-1 campuses remains in the low 5% range.

There is also increased institutional private equity interest in value-add student housing assets, that have compressed cap rates for this segment of the market as well.

According to the recently released, CB Richard Ellis year-end 2015 student housing market overview; the transaction volume in 2015 was $5.6 billion, a record year for volume, as compared to $3.7 billion in 2014, and the spread between multifamily cap rates and student housing cap rates have continued to narrow to just 10 to 15 basis points. The CB Richard Ellis report is further evidence of the increased level of Investors interest in student housing assets.

On the capital recycling front, we have signed contracts for the sale of six non-core assets, that could take advantage of the current market conditions. These communities are consistent with the type of non-core assets sold in 2014. Please note, the impact of these possible dispositions, is included in our 2016 earnings guidance. However, we cannot predict if any of these properties will ultimately be sold, or the timing of such sales.

On page 19 of the supplemental, you will find our third party developmental summary. The renovation of Bowles Hall at the University of California, Berkeley, is progressing as planned. Pre-development planning of the Texas A&M Commerce Project is progressing with an anticipated construction start this summer. And the 488 bed East Stroudsburg project is on schedule to close financing and to start construction in the summer of 2016.

Please note the addition of a recent EdR award for a third party development at Shepherd University. We have recently entered into a predevelopment agreement with the university, to deliver a 297 bed community for our fall 2017 delivery. As is the case with all third party developments, development, construction and delivery of these units is subject to execution of final definitive agreements, final G&P pricing, and third party financing.

In closing, allow me to reiterate EdR's external growth priorities. First, deliver all developments on time and on budget with operating performance and keeping with our underwriting. Win more on-campus ONE Plan development opportunities, create a meaningful pipeline of off-campus developments, for 2017 and beyond, and the continued disciplined monitoring of the acquisition markets.

With that report, allow me to turn the call over to our Chief Financial Officer, Bill Brewer.

Bill Brewer

Thank you, Tom. Core FFO in the fourth quarter of 2015 increased $4 million or 13% to $33 million while core FFO per share increased 2%. The improvement in core FFO was mainly due to growth in community NOI. Core FFO per share growth was muted, due to the November 2015 follow-on equity raised, that increased shares outstanding and reduced debt-to-gross assets to 28% at year end, from 35% the prior year.

Full year 2015 core FFO increased 14% from 2014 to $92 million. The growth in core FFO mainly reflects $25 million of additional NOI from new communities, and a 5.8% in same community NOI, that was partially offset by a reduction in NOI from communities sold in 2014 higher ground lease expense, corporate G&A and interest expense.

Core FFO per share for the year declined 2%, which reflects a dilution from the capital market transactions in June 2014 and November 2015. While the capital transactions significantly increase shares outstanding, more importantly, they reduce debt-to-gross assets from 43% at the end of the first quarter of 2014, to 28% at the end of 2015, strengthening our balance sheet and adding additional capacity to fund our development pipeline and other investment opportunities.

For the full year, same community revenue was up 5.4% and operating expenses were up 5%, resulting in a 5.8% improvement in NOI. Expense growth for the year outpaced expectations, mainly due to an $800,000 real estate tax charge that we incurred in the first quarter of 2015, related to the settlement of an assessment dispute brought by a local school board, that covered several prior assessment years. Excluding this, operating expenses increased 3.9%, which was within the company's original guidance range of 3% to 4%.

Same community gross margins for the years increased slightly over prior year, 56.1%. Total community revenue and NOI were up 17% and 23% respectively for the full year, reflecting a strong growth in our same community portfolio, as well as the impact of external growth from our 2014 and 2015 developments and acquisitions, which were partially offset by a decline in NOI due to dispositions in 2014 and 2015. The double digit growth in community NOI and core FFO is reflective of the continued value creation from the outstanding new communities, delivered by Tom and his development team, and the hard work of Chris and her team to fill the new developments, as well as produced industry leading same community revenue growth. Please refer to pages 6 and 7 of our financial supplement for additional details on our community operating results and same community expenses.

Turning to our capital structure; our balance sheet strategy is to maintain reasonable current and future leverage metrics, when factoring in our development pipeline. However, please note that we have reset our current debt-to-gross asset leverage target to 25% to 30% compared to our prior target range of 35% to 40%.

We believe the lower leverage target, puts the company in the best position to not only fund its current development commitment, but more importantly, to take advantage of additional external growth opportunities, as they present themselves.

In transitioning to the new debt-to-gross asset targets, we completed a follow-on equity offer in November of 2015, selling 8.1 million shares and raising net proceeds of $270 million. The company also raised $60 million during the fourth quarter selling just over 400,000 shares of stock under its ATM. The proceeds we use to pay off $261 million of debt, including the remaining balance on our revolving credit facility, reducing our debt-to-gross assets from 40% at September 30, 2015, to 28% at the end of the year.

In addition, at 12/31/2015, our variable rate debt was 17% of total debt, our weighted average debt maturity was just over $5 million, and we had approximately $500 million in capacity under our existing revolver.

Subsequent to year end, the company announced two new development commitments totaling over $100 million and completed a second follow-on equity offering, selling 6.3 million shares and raising net proceeds of $215 million. $108 million of the proceeds were used to pay out $98 million of fixed rate mortgage debt, with an average effective interest rate of 5.4% and $10 million of prepayment penalties associated with the early extinguishment of the debt.

The remaining proceeds will primarily be used to fund the company's development pipeline, which includes $404 million of active developments, of which $97 million was already funded at the end of 2015. And remaining $307 million will be funded through incorporating of operating cash, proceeds from the follow-on equity offerings, debt, and property sales and capital market activities as necessary.

Although, dilutive on a short term basis, the 2016 core FFO per share transacting, these equity raises, if reasonable pricing relative to net asset value estimates, repositions the balance sheet to fund our current commitments and take advantage of additional external growth opportunities, which will drive long term growth for shareholders.

Turning to 2016 guidance; based on the company's current estimates, management reaffirms the initial 2016 core FFO per share guidance that released on February 2, 2016 of $1.70 to $1.76. This includes core FFO per share before potential capital transactions of $1.77 to $1.84, less the impact from potential capital transactions of $0.07 to $0.08 per share. Please note, that the midpoint of our 2016 guidance, after potential capital transactions, represents a five year compounded annual growth rate in core FFO per share of approximately 6%. This solid performance will be achieved during a period win, including the 2016 estimates, the company would have delivered approximately $900 million in development, sold over $550 million in assets, and reduced debt-to-gross assets from an average of 34% in 2011, to an estimated 25% by the end of 2016. A fantastic five year accomplishment.

Please refer to our February 2, 2016 press release for more details on our guidance assumptions.

With this overview, operator, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Jordan Sadler with KeyBanc. Please proceed with your question.

Austin Wurschmidt

Hi good morning. Its Austin Wurschmidt here. Just focusing on the capital transaction side; I was curious if you could provide some additional characteristics of the asset that you're selling, versus I guess what you're targeting for new acquisitions or developments? And what will it leave you, in terms of the assets that you will have, greater than one mile from campus?

Tom Trubiana

Good morning. This is Tom. Indeed the assets that we are currently marketing and have under contract for sale, are very much in keeping the assets that we divested ourselves over the last couple of years. Typically, secondary -- well tertiary markets and further from campus older product, we have largely pared that type of product from our portfolio, but we will continue to look for opportunities to potentially recycle capital in specific markets, that make sense to do that.

Austin Wurschmidt

So then, I guess, in terms of what your confidence is on recycling that, in terms of like what's your focus on the acquisition front from a portfolio management perspective, are there campuses that you're looking to increase your exposure to or more new markets at this point?

Tom Trubiana

Yeah. As we said previously, given where cap rates are today, I mean, our focus is either on-campus or truly pedestrian to campus; and where cap rates are today in the very low 5s and some reported below 5 cap rates, we are monitoring the acquisition market, we are what is all trading. But it needs to make sense in order to make the acquisition. So things do change, and we always study the dynamics of an individual marketplace, because all real estate eventually is really local. I think you will see the external growth from our company be more on the on-campus development and developments that are pedestrian to campus, until such time, the cap rates on acquisition -- on assets that we are targeting has moved forward.

Austin Wurschmidt

Thanks for the detail there Tom; and then, you mentioned potentially adding the 2017 backlog from an off-campus perspective; I guess, when would you have to commence construction, in order to add to 2017 deliveries? And then what yields are you targeting? Any change in the targeted yields today on new announcements for both either on-campus or off-campus deals?

Tom Trubiana

Sure. We have a number of potential developments that, if things come together within the next 60 to 90 days maximum; and that typically is getting appropriate G&P pricing. I mean, as a policy, we don't announce until we are relatively certain, a project is going forward. So clearly within the next 90 days maximum, we will know whether we are adding additional developments for 2017 or not, and -- I am sorry the second part of your question?

Austin Wurschmidt

Just curious on the targeted yields? You mentioned deliveries for what's currently in the pipeline or in the low 7% range, and I was just curious, looking forward on new deals, should we expect the same or anything different?

Tom Trubiana

That low 7s is a drop from mid-7s about a year and a half ago, primarily because of construction prices going up, and then for off-campus, land values and all. Currently, everything that we are targeting is in the low 7s.

Austin Wurschmidt

Thanks. And then just last one for me, for the six assets that are under contract today, could you let us know, what tiers those are included in, on the pre-leasing breakdown in the supplemental?

Randy Churchey

Let us get back to you on that, while we figure that out.

Austin Wurschmidt

Okay. Thank you.

Operator

Our next question comes from the line of Jana Galan with Bank of America Merrill Lynch. Please proceed with your question.

Jana Galan

Thank you. Good morning. I think the last update you provided for pre-leasing in early January had the some community pool, up 190 basis points year-over-year. Were you surprised to pick up another 300 basis points of momentum in the last five to six weeks? And could you maybe a little bit more aggressive on the rents, given the demand?

Chris Richards

Good morning Jana, it's Chris. No; was I surprised by the pickup? No, because we are in the middle of heavy leasing season. So not surprised, pleased by the results. And we are continually pushing rate on every asset across the portfolio. And if you remember, last year, we delivered our portfolio with all assets, having rate growth with the exception of one. So we are definitely pushing rate to its maximum.

Jana Galan

And then, just a quick question on the supply for your universities with greater than 5% of stock. It looks like, University of Tennessee fell out. Is that getting pushed into 2017 supply, or is that project gone?

Chris Richards

Yes, it's getting pushed.

Jana Galan

Thank you.

Operator

Our next question comes from the line of Alexander Goldfarb with Sandler O'Neill. Please proceed with your question.

Alexander Goldfarb

Good morning.

Randy Churchey

Good morning.

Alexander Goldfarb

Hey, how are you? Just some quick questions for you; first, Randy, on the back-to-back equity offerings, can you just walk us through sort of your thinking, as you thought about the market in November and then in January? Was it either a change in the opportunity set out there for development, or was it a nervousness over what's going on the capital markets, where you may have wanted to be able to be -- more spaced out, just the market volatility made you accelerate things? Just want to get a better sense for the thinking for the quick back-to-back?

Bill Brewer

Alex, I think it was primarily the opportunities that are presenting themselves. As you know, right before that second equity offering, we announced the possibility of the -- or the award of the Cornell Deal, and the possibility that that might be a one plan deal. So that opportunity plus just other things that we are seeing in the pipeline, is what drove us to go ahead and issue equity the second time.

As Tom mentioned just a couple of minutes ago, it's possible that we add more than one new development to 2017. Now likewise, it's possible that none of them get added to 2017 and move to 2018. But we saw an increasing number of both on and on-campus opportunities that we think we are in good position for, so we thought it would be a good idea to take equity funding, essentially off the table, all the way through 2017.

Alexander Goldfarb

Okay. And then along those lines, Bill, looking on the development schedule, $300 million left to fund, there is sort of like an excess of $100 million. And then, I am assuming all the dispose that you talked about are unencumbered? Maybe there is some encumbrance? But with what you have on handing cash, even Randy, if you got an extra development award, you would see that being funded off the line of credit, or would you increase dispositions to equity fund that -- if you guys get an additional 17 development? Would you look to equity find that, or you wouldn't mind using line of credit for that?

Bill Brewer

Alex, I think, we'd have to look at it at the time, but we have, as you can see from a metric, significant capacity on our revolver.

Alexander Goldfarb

Okay. And then lastly for Chris; the Midwest lag on the pre-leasing, was that something specific in its certain markets, or was that more just a number of properties that aggregate together?

Chris Richards

Well, pre-leasing is very strong overall across the portfolio, but in the Midwest, there is only four assets included in the Midwest. And if you remember, last year, at the University of Missouri, there was a very public kind of issue with the departure of the President. And temporarily, it had hurt enrolment, and with the temporary hurt on enrolment, it had impacted us this year. We expect, as the university does, recovery in the next year. But that is what has slowed down in the Midwest.

Alexander Goldfarb

Okay cool. Thank you.

Randy Churchey

Thank you.

Operator

Our next question comes from the line of Ryan Meliker with Canaccord. Please proceed with your question.

Ryan Meliker

Hey, good morning guys. Most of my questions have been asked and answered, but one thing I was just hoping to get a little color on, and this is probably more Chris than everybody else; looks like your 2015 developments came online about 150 basis points below same store. Those numbers are in your current same store, if I recall correctly; are they going to create a little bit of a tailwind to same store occupancy for this year, in which case may be, with 490 points of lead in that flat occupancy is a little conservative?

Bill Brewer

Well I will jump in real quick; our guidance is our guidance. So there is a little bit of tailwind, given the, I guess it was 150 basis points of the non-same store last year. But I realized, our same store hit 97 last year. We have said forever, that we believe 97 is the optimal occupancy for our portfolio. Can we do a little bit better? Sure. But each and every year, there is something new that comes up, that's possibly negative; like Missouri, like Chris just mentioned. So our guidance is our guidance, we hope to do better.

Ryan Meliker

All right. Thanks. That's it for me.

Operator

Our next question comes from the line of Drew Babin with Robert W. Baird. Please proceed with your question.

Drew Babin

Good morning. I was hoping you could talk about the range of revenue growth outcomes realized in 2015 within the one client portfolio, and whether the range of those communities was tighter than the off-campus pool? And also, maybe talk about kind of the outcomes at Kentucky and how things are looking for 2016?

Randy Churchey

I will address the first part and let Chris do the second. On the on-campus assets, as you know, we have the on-campus assets at Kentucky, which achieved a 3% increase in revenue growth last year. Then the other on-campus assets are at DC, Texas, tier-IIs, those assets, I will say were kind of all over the board. Texas asset was up in the high single digits; Syracuse I think was mid-single digits and TCU was closer to 3% to 4%.

So I'd like to say there is a blanket conclusion you can draw. I don't think you can. The blanket conclusion that we draw going forward, is that we know those assets because of their location, and the universities they serve, are going to be much more stable and revenue growth than any other set of assets, in case there is some sort of downturn or something.

And in this year for Kentucky?

Chris Richards

Out of the 5,700 beds, we have 88% of them leased, which is in line with where we were last year. I think the other key -- we filled those beds to 100% last year, and I think the other keys that enrollment management is reporting, that application to the university itself were up 11%, the dynamics were very strong for another very successful year at U.K.

Drew Babin

Okay, thank you. Second of all, the operating expense guidance for 2016, 2.5% to 3.5%. I was wondering, what you were assuming in terms of real estate tax growth, as well as the repairs and maintenance, kind of within that number?

Bill Brewer

On the real estate tax growth, we are probably in the 5% to 6% range, on just a recurring basis for that. Repair and maintenance is probably in the 3% to 4% range.

Drew Babin

Okay. That's helpful. Thank you.

Bill Brewer

Getting back to the question that somebody had on the tiers of the assets that we are currently marketing; there is one asset in tier-1, three assets in tier-2, and two assets in tier-3.

Operator

[Operator Instructions]. Our next question comes from the line of Wes Golladay with RBC. Please proceed with your question.

Wes Golladay

Hey there everyone. Good morning. Going back to Kentucky, I mean it looks like there is a lot of pent-up demand in that market. When you underwrite these developments for their low 7% yields. What type of occupancy do you pro forma?

Tom Trubiana

We typically are pro forming 96% occupancy.

Wes Golladay

Okay. Then going to the asset sales, is that small portfolios, a bunch of individual one-off, and is it subject to financing for the buyer?

Tom Trubiana

Five of the assets are one contract, the others are individual contract. In all cases, they have not yet gone hard, so they are in various stages of due diligence. And include financing. Typically not the issue today with the people that are buying our assets, they are able to get their financing.

Wes Golladay

Okay. Thanks a lot.

Operator

Thank you. It appears we have no further questions at this time. Mr. Churchey, I would now like to turn the floor back over to you, for closing comments.

Randy Churchey

Well thank you for your time everyone, and we look forward to communicating our progress again on our first quarter earnings call in April. Thank you.

Operator

Ladies and gentlemen, this conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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