Education Realty Trust Inc. (EDR)

EDR 
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Education Realty Trust, Inc. (EDR)

Q4 2013 Results Earnings Conference Call

February 18, 2014 10:00 AM ET

Executives

Brad Cohen - ICR

Randy Churchey - President and CEO

Chris Richards - Senior Vice President and COO

Tom Trubiana - Chief Investment Officer

Randy Brown - Chief Financial Officer

Analysts

Karin Ford - KeyBanc Capital Markets

Paula Poskon - Robert W. Baird

Jana Galan - Bank of America Merrill Lynch

Alex Goldfarb - Sandler O'Neill

Nick Yulico - UBS

Ryan Burke - Green Street Advisors

David Harris - Imperial Capital

Presentation

Operator

Greetings and welcome to the EDR Fourth Quarter 2013 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, Mr. Brad Cohen of ICR.

Brad Cohen

Thank you, operator and good morning. 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 and 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. 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, President and Chief Executive Officer. Randy?

Randy Churchey

Good morning. Thank you for joining us for the EDR fourth quarter 2013 earnings call. For today’s call, I will make a few brief comments; Chris Richards, our Senior Vice President and Chief Operating Officer will review property performance in fall 2014 leasing; Tom Trubiana, our Chief Investment Officer will discuss acquisition, disposition and development activity and Randy Brown, our Chief Financial Officer will review the quarter’s performance.

Overall, I am pleased with our accomplishments in 2013. And as we began this year, our company and the student housing industry continued to perform well. In 2013, we improved our best-in-class portfolio of student housing communities through new developments, acquisitions and selected sales. We produced an industry leading increase in same-store revenue of 5% for the fall of 2013 leasing cycle. We purchased or delivered 346 million of new assets, increasing our gross asset base by 21%. We commenced construction on additional 433 million of new developments and pre-sale opportunities scheduled to open in 2014 and 2015, all of which have been pre-funded through our low leverage balance sheet. These new assets represented nearly 17% growth in our portfolio.

Included in these 2014 and 2015 new developments is a continuation of the University of Kentucky’s landmark on campus revitalization using EdR’s proprietary on campus financing program, The ONE Plan. All of this was accomplished, while maintaining an appropriately capitalized balance sheet.

As a result, our core FFO per share increased 17%. This 2013 increase in core FFO ranked EdR in the 98 percentile of all publicly traded REITs. Moving with the stellar operating investment performance, our 2013 total return to shareholders was disappointing. Unfortunately, our returns were hampered by changing investor sentiment for the student housing sector as the average total shareholder return for the sector was a negative 19%, easily the worse performing REIT asset class. We believe this negative investor sentiment is not [long-term.] Please refer to our Investor Relations tab on our website for information addressing the positive enrollment trends that are predicted for the sector through 2021, the manageable near term new supply and the modernization of student housing taken place in our industry.

Furthermore, just last week, the Pew Research Center released results from a study that concluded: One, the earnings gap between young adults with and without a bachelor’s degree has stretched to its widest level in nearly half a century. Young adults with just a high school diploma are only 62% of a typical salary of college grades. Second, 9 of 10 college graduates ages 25 to 32, so that their bachelor’s degree had paid off or will pay off in the future. And third, young adults see significant economic gains from getting a college degree regardless at a level of student debt they have taken on.

The study concludes with this memorable quote. The only thing more expensive than getting a college education is not getting one. Our outlook for the student housing business and EDR is very positive. Our 2013 robust leasing results and the 2014 positive pre-leasing velocity provide objective evidence to validate our conclusion.

Let me make a few comments about our portfolio communities. Over the last four years, we purchased more than 670 million of communities, developed 284 million of owned assets and disposed 237 million in smaller lower growth assets. These transactions have transformed our portfolio of communities into one the best located, strongest cash flow generating portfolios in the country.

At the end of 2013, our owned communities had the following characteristics: medium distance from campus of one tenth of a mile, average enrollment of over 25,500, average age of seven years, and average monthly rental rate of $638 per bed. This growth profile of our portfolio should endure due to its focus on well located communities at larger, more robust universities that are expected to see their enrollments continue to grow.

In addition to the stellar 2013 leasing cycle results, over the last four years, EdR has produced a market leading average annual increase in same-community revenues of 4.3%. We believe this type of organic growth will continue in the years ahead.

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