U.S. Markets closed

Edited Transcript of EDR earnings conference call or presentation 1-May-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Education Realty Trust Inc Earnings Call

Memphis May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Education Realty Trust Inc earnings conference call or presentation Monday, May 1, 2017 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christine D. Richards

EdR - COO and EVP

* Edwin B. Brewer

EdR - CFO, EVP and Treasurer

* J. Drew Koester

EdR - SVP of Capital Markets and IR

* Randall L. Churchey

EdR - Chairman and CEO

* Thomas Trubiana

EdR - President and Director

================================================================================

Conference Call Participants

================================================================================

* Alexander David Goldfarb

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst

* Andrew T. Babin

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Austin Todd Wurschmidt

KeyBanc Capital Markets Inc., Research Division - VP

* Carol Lynn Kemple

Hilliard Lyons, Research Division - VP and Analyst for Real Estate Investment Trusts

* David Steven Corak

FBR Capital Markets & Co., Research Division - VP and Research Analyst

* Gwendolyn Rose Clark

Evercore ISI, Research Division - Research Analyst

* Juan Carlos Sanabria

BofA Merrill Lynch, Research Division - VP

* Nicholas Gregory Joseph

Citigroup Inc, Research Division - VP and Senior Analyst

* Ryan Cole Burke

Green Street Advisors, LLC, Research Division - Analyst

* Ryan Meliker

Canaccord Genuity Limited, Research Division - MD and Senior REIT Analyst

* Thomas James Lesnick

Capital One Securities, Inc., Research Division - Analyst

* Wes Golladay

RBC Capital Markets, LLC, Research Division - Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good evening, and welcome to EdR's First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Drew Koester. Thank you, you may begin.

--------------------------------------------------------------------------------

J. Drew Koester, EdR - SVP of Capital Markets and IR [2]

--------------------------------------------------------------------------------

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 actual results to differ materially from those discussed today. Examples of forward-looking statements may include those related to revenue, operating income and financial guidance as well as non-GAAP financial measures. Risk factors relating to the company's results and management statements are detailed in the company's annual report on Form 10-K for the year ended December 31, 2016, and other filings with the Securities and Exchange Commission that are available on our website. Forward-looking statements refer only to expectations as of the date on which they are made. EdR assumes no obligations 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?

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [3]

--------------------------------------------------------------------------------

Good morning, everyone. Thank you for joining us for the EdR First Quarter 2017 Earnings Call.

The beginning of 2017 started off well, with core FFO per share up 11%, 3 new on-campus developments, including a 1 planned development with Cornell University, a new pedestrian-to-campus 2018 development at Colorado State, solid pre-leasing and projected same-community revenue increase for the fall of 3% at the midpoint, and EdR winning an industry-leading 6 Innovator Awards from Student Housing Business, all in all, a nice start to 2017.

I'll talk about internal growth first. Over the last 6 years, through 2016, EdR has produced same-community revenue and NOI, compounded average growth rates of 3.6% and 3.8%, respectively. We believe the combination of favorable industry fundamentals, our best-in-class portfolio of on- and off-campus student housing, and our outstanding property operations team will continue to produce consistent internal NOI growth.

Our portfolio of communities boasts the following characteristics: 89% of our NOI is from pedestrian-to-campus and on-campus assets; 31% of our NOI is from on-campus assets, reflecting our enduring strength in the on-campus development marketplace; the median distance from campus at our portfolio is 1/10 of a mile; the average enrollment of universities served is nearly 28,000; the average age is 8 years; and the average monthly rental rate is about $800 per bed.

Now the external growth. I am pleased with the recent positive activity in the on-campus P3 market. Last week, American Campus announced 5 new on-campus developments and today, we announced 3. In addition, many other possible P3 pursuits, including the University of California system initiative, are progressing well. The on-campus development opportunities are robust, and EdR is well positioned to win our fair share.

Our current development pipeline represents significant embedded external growth through 2019. This prefunded growth represents a 47% increase in our collegiate housing assets over December 31, 2016. Importantly, 28% of our new developments are located on-campus and 96% are on-campus or pedestrian-to-campus. Furthermore, our opportunities to build a meaningful pipeline of 2019 deliveries remains outstanding.

In closing, I want to acknowledge that we've had recent difficulties with a few assets in our portfolio. Rest assured, these difficulties have not changed our opinions on the strength of the industry fundamentals, the vibrancy and desirability of the P3 on-campus market, and the benefits of our development pipeline to our shareholders. This management team has produced industry-leading results over the past 7 years while growing our enterprise value from just over $600 million to more than $3.6 billion, and I know our team, processes and systems are up to the task of continuing to generate great total shareholder returns.

The outlook for the student housing industry and our company remains very positive. Enrollment growth averaging 1.4% annually through 2023, manageable near-term new supply, and the modernization of on- and off-campus 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.

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [4]

--------------------------------------------------------------------------------

Thank you, Randy. For the first quarter, same-community revenue grew by nearly 1% and operating expenses increased 5%, resulting in an NOI decline of 1.2% from the prior year. I would like to point out that while we experienced and anticipated 16% increase in real estate taxes, the focus of our community staff on controllable expenses helped keep direct operating expense growth to 2.2% over the prior year, another good performance by our team managing expenses.

We are currently 130 basis points ahead of prior year, with 78.1% of our same-community beds preleased for the fall. This excludes our 5,700 same-community beds at the University of Kentucky as the university's assignments to its communities does not occur until mid-May. This trend in leasing reflects the strength in our markets as expected based on credit team supply and demand dynamics. We have made progress at the University of Kentucky with our same and new beds, 96% applied for the fall compared to 89% at the time of our last update and expect rate growth for the new lease term of 3% to 4%.

While a portion of applications do not ultimately turn into leases, the application process continues at the university, and we feel comfortable with our projected fall occupancy of 95%. Based on current leasing velocity and market conditions, including the same-community beds at Kentucky, we expect the same-community weekly portfolio to open the '17-'18 lease term with occupancy flat to prior year and rates to be up approximately 2.5% to 3.5%, resulting in rental revenue growth in the range of 2.5% to 3.5%.

The midpoint of our projected same-community revenue growth for the fall, including Kentucky, of 3%, is consistent with our long-term expectations for revenue growth in student housing and is in line with our public company peers.

Turning to leasing at our new community, our 3,200 new community beds are currently 51.1% leased for the fall. This excludes our new on-campus beds at Boise State, Northern Michigan and Kentucky since the on-campus assignment process at these universities has not yet occurred. Currently, the 656 beds at Boise State and the 417 beds at Northern Michigan are 97% and 131% applied for the '17-'18 lease term, respectively. The new community leasing update only includes 51% of the beds for our new development at Oklahoma State as we anticipate only 1 building will be delivering in '17 and the remaining beds following in '18.

Other community, which for leasing purposes represents University Towers, is currently 31% leased for the fall, while leasing is progressing generally as we expected and despite utilizing many different marketing and operational strategies, we are experiencing the struggles anticipated with trying to attract upperclassmen to replace our predominantly freshmen residents. We are working on a variety of avenues to maximize the value of this asset. Please keep in mind that as anyone who operates a portfolio of assets will experience, each year, there will be assets that underperform and outperform the average. For the 6 years from 2011 to 2016, our same-community NOI CAGR was 3.8%.

In summary, industry fundamentals are strong, with modernization more than offsetting the slight supply-demand imbalance. This favorable operating environment expects to continue with the vast majority of industry participants at the recent InterFace Student Housing Conference expecting new supply levels in 2018 to either be in line with or below '17 levels. We have the team and resources to continue managing our existing properties at the high level we are accustomed, while successfully integrating exciting new acquisitions and developments into our portfolio.

I will now pass the call to Tom.

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [5]

--------------------------------------------------------------------------------

Thank you, Chris. Good morning. I'd like to start this morning by discussing opportunities in the on-campus market. Considering the long runway associated with on-campus development pursuits, I'm happy to announce that we have seen positive movement recently, including being awarded 3 new on-campus developments. EdR, through its 85% partnership with East Hill Village Partners, has been selected by Cornell University as its development partner for the redevelopment of the University's East Hill Plaza. The first phase of this mixed-use redevelopment, which will include collegiate housing and retail, is targeted for a 2020 delivery. The contemplated development at the [East-wing] gateway to Cornell is similar to EdR's successful stores development that created the vibrant new urbanism town center at the University of Connecticut.

We were also awarded the right to begin predevelopment services for 2 proposed third-party developments, the first at the University of South Florida, St. Petersburg, which is a mixed-use development with approximately 500 suite-style beds, a conference center, dining facility and is targeted for delivery in the fall of 2019 or 2020.

The second at Thomas More College is replacement housing of 600 undergraduate with beds and is currently targeted for a fall 2019 delivery. All 3 of these on-campus developments are subject to final negotiations of definitive agreements with the universities they serve.

The ONE Plan developments under construction at the University of Kentucky, Boise State, Northern Michigan, Cornell and Maplewood are all progressing as planned, on schedule and within budget. The third-party developments at East Stroudsburg, Texas A&M Commerce and Shepherd University are also on schedule and within budget.

The University of California system's procurement process for approximately 14,000 on-campus beds on 7 different campuses has progressed. The UC system has narrowed down the list of participants to 8 companies, of which we are one that are qualified to participate in the individual campus pursuits. It is early in the process, but 2 UC universities, Riverside and Santa Cruz, have published RFPs. It is currently unclear whether they will go the route of equity with third-party development and the earliest any beds would be delivered is fall of 2020.

We continue to see growth in the number of universities interested in P3 financing to solve the universities' 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 this increased 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. EdR is currently actively tracking over 30 on-campus opportunities. The depth of the on-campus development market has never been greater.

Next, to off-campus developments. We continue to see the benefits of tighter construction lending, which has helped contribute to the growth of our actives development pipeline by bringing more joint venture opportunities to EdR. I am proud of our team's ability to capitalize on these opportunities, converting them from concepts to live economically accretive developments. I'm also pleased to report that we're seeing the first year development yields holding at 6.5% to 7%. An example of this dynamic is our new development pedestrian to Colorado State University. We are the 70% owner and we'll manage the 229-bed community, which is targeted to open in the fall of 2018. This community is a perfect complement to the communities we already own in the Colorado State market. With the addition of this development, our development pipeline for 2018 delivery is set. Our development team is now actively pursuing numerous developments, both on- and off-campus for 2019 and beyond.

In total, EdR has $1 billion of accretive development projects for delivery in 2017 through 2019, which represents, as Randy said, a 47% increase in collegiate housing assets over December 31, 2016. With first year economic yields that represented approximately 30% premium to current market valuations for student housing assets pedestrian to Tier 1 universities, our development pipeline is creating value for EdR and its shareholders.

On Page 16 of the supplemental, you will have noticed that we have moved a portion of our 2017 development at Oklahoma State to 2018. Despite our general contractor's belief that they will complete the entire project on time for a fall 2017 delivery, we are re-forecasting that only 1 of the 2 buildings, or 51% of the total beds, will actually open this fall. We have implemented our available oversight controls, we have financial damage clauses in our contract, and we will continue to aggressively monitor the GC's progress.

Our original core FFO per share guidance for 2017 included about $0.015 of contribution from delivery of the entire development.

In regards to our Hawaii development, the project is now out of the ground and slightly ahead of schedule. As a result, we have increased confidence that the development will ultimately be moved to a 2018 delivery. All other 2017 and 2019 development deliveries are on schedule and within budget.

From 2010 to 2017, we have will developed nearly $1.2 billion of owned assets with a peerless record of delivering projects on time and within budget. The $33 million Oklahoma State development may become the first time we have pushed targeted delivery of beds despite all of our efforts to avoid a late delivery. Should this occur, it will be very disappointing. This was one of the risks of development and why, in our view, development first-year yield premiums need to be approximately 30% of our acquisitions.

Turning to the acquisition and disposition markets. During the quarter, we closed on the previously announced acquisition of 319 Bragg, a 305-bed community pedestrian to Auburn University for $28.5 million. We recently entered into a binding agreement to sell The Reserve at Stinson, a 612-bed community, serving the University of Oklahoma for $18 million.

The InterFace Student Housing Conference was recently held, and the upbeat mood of the conference was consistent with the record transaction volumes seen in 2016. The consensus at the conference was that student housing is now a widely accepted core institutional asset class with increased interest from domestic and international capital. While construction lending has tightened, which helped -- should help keep supply in check, permanent financing is still readily available and, therefore, we expect for the acquisition market to be very similar to last year. With all these dynamics, 2017 cap rates, we believe, will be in line with the 2016 levels.

In closing, EdR's external growth priorities continue to be: develop all deliveries on time and on budget, with operating performance in keeping with our underwriting; win more on-campus ONE Plan development opportunities; create a meaningful pipeline of off-campus developments for 2019 and beyond; and the disciplined monitoring and selective purchasing of assets in the acquisition market. EdR's external growth opportunities both on- and off-campus are vast. We will continue to be opportunistic in the acquisition market, and our development team has abundant opportunities to add to the development pipeline for 2019 and beyond.

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

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [6]

--------------------------------------------------------------------------------

Thank you, Tom, and good morning, everyone. Core FFO in the first quarter of 2017 increased $10.1 million or 29.7% to $44 million, and core FFO per share grew $0.06 or 11.1% to $0.60 a share. The strong growth in core FFO was mainly the result of a $6.6 million increase in total community NOI, a $1.6 million reduction in interest expense, and a $1.3 million increase in third-party development consulting services revenue. Please refer to our financial supplement for additional details in our community operating results and same-community expenses.

Turning to our capital structure. Our balance sheet strategy is to maintain conservative current and future leverage metrics when factoring in our development pipeline in any acquisition commitments. As previously communicated, our debt-to-gross asset leverage target is 25% to 30%. We feel this leverage target puts the company in the best position to not only fund its current development commitments but, more importantly, to take advantage of additional external growth opportunities as they present themselves.

As of March 31, 2017, our debt-to-gross assets was only 24%, and we have $311 million of, completed-but-not-yet-settled forward equity transactions under our ATM program. We recently locked rates on a total of $150 million in unsecured private placement notes. The notes are evenly split between a 12-year and a 15-year maturity and will bear an average fixed interest rate of 4.26%. We are targeting to close on the notes by the end of the second quarter and anticipate using the proceeds to pay down the balance on our revolver. Keep in mind that this commitment has customary contingencies and the closing of the transaction is not guaranteed.

Since our fourth quarter earnings release, we have sold nearly 400,000 shares under our after-market forward sale program, bringing our total to $7.3 million forward-settling shares sold at a weighted average net price of $42.57 and representing approximately $311 million in future funding for our capital commitments. The use of this innovative funding mechanism allows us to lock in the funding for our equity capital requirements at the time we make an investment commitment, while delaying dilution from the issuance of shares until the funds are needed. We have the option of settling 6.9 million of the forward shares at any time prior to December 31, 2017. The remaining completed forward sales and any additional sales under the current authorization can be settled at our option through December 2018.

Please keep in mind that EdR short interest of approximately 11% is elevated due to the outstanding forward sales under our ATM program and is not indicative of market sentiment toward EdR stock. The 7.3 million outstanding forward-settling ATM shares represent approximately 10% of our outstanding shares. Please refer to financial supplement as I discussed sources and uses of capital.

Our capital commitments at March 31, 2017, related to announced acquisitions and active developments totaled $1 billion, with $712 million remaining to be funded, $412 million in 2017 and $300 million in 2018. We currently anticipate funding these commitments with existing cash, debt capacity, and settling our existing $311 million of ATM forward shares that have already been sold but not settled. As you can see, with our low leverage and use of the ATM forward program, if we were to fund 100% of our 2017, 2018, and 2019 development commitments today, with cash-on-hand and settlement of the forward equity and existing debt capacity, our debt-to-gross assets would only be 29%, within management's targeted leverage range of 25% to 30%. What a great place to be, built-in growth in collegiate housing assets of 47% already funded.

Turning to 2017 guidance. Based on our current estimates, we are reaffirming our 2017 core FFO per share unit guidance of $1.90 to $2.

With that overview, operator, please open up the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Ryan Meliker with Canaccord Genuity.

--------------------------------------------------------------------------------

Ryan Meliker, Canaccord Genuity Limited, Research Division - MD and Senior REIT Analyst [2]

--------------------------------------------------------------------------------

I just wanted to ask a little bit more color on Oklahoma State and what was going on there with the delay in the development. I guess 2 things associated with that is: Can you give us an indication of what's driving it, how late you think the second half will be? And then, how much of a, I guess, lost in projected revenues gets absorbed by the contractor versus you guys in terms of what contingencies you had in place to limit the financial impact tied to the delay?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [3]

--------------------------------------------------------------------------------

Sure, right. This is Tom. The Oklahoma State development is actually in a joint venture, where EdR is the 70% owner. And we actually have a development partner who's the lead developer that contractually is at risk for delivery of the project on time and within budget, so it's within our contracts. Additionally, the general contractor that we selected, or actually, our development partner, and vetted by EdR, is a company called Shreve Land construction company. It's a very large company, reputable, been in business for over 50 years. And with Shreve Land, as is the case with all of our developments, we require that the contractor provide payment and performance bond. So we have felt in suspenders, but it's not always a world perfect and sometimes these things get settled elsewhere, but we do have contractual language that should help protect EdR. What happened to make the project fall behind schedule? Given the kind of sensitive or potentially sensitive nature of this thing, it's probably inappropriate for us to make comments other than we believe the project was not well managed by the general contractor, and some of the subbase got pulled into other projects. But to go further than that, I think would be kind of inappropriate. We have a staff person on site daily and the project -- the total project is behind now of approximately 40 days. And so given the current construction schedule, our construction management team is now forecasting that only the East building will be completed on time for fall opening. Well, that represents about 60% of the square footage, it is 51% of the beds, the vast majority of our amenities and our leasing office. And so we'll continue to monitor the situation, but as of today, we believe that 51% of the beds will be available. The remaining portion of it, we believe, would be opened by October at the latest, but in leasing to students, we really have a cycle and that only is applicable at the beginning of the academic school year. You may pick up a few students in January.

--------------------------------------------------------------------------------

Ryan Meliker, Canaccord Genuity Limited, Research Division - MD and Senior REIT Analyst [4]

--------------------------------------------------------------------------------

So are any of the second tower units already leased? And then, would EdR and your joint venture partner have to come out of pocket to fund short-term housing for those students?

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [5]

--------------------------------------------------------------------------------

No, Ryan, I don't have anything in Phase II leased at this time.

--------------------------------------------------------------------------------

Ryan Meliker, Canaccord Genuity Limited, Research Division - MD and Senior REIT Analyst [6]

--------------------------------------------------------------------------------

Okay. And yet, I take it you guys aren't trying to lease Phase II right now, is that correct?

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [7]

--------------------------------------------------------------------------------

No, we are not.

--------------------------------------------------------------------------------

Ryan Meliker, Canaccord Genuity Limited, Research Division - MD and Senior REIT Analyst [8]

--------------------------------------------------------------------------------

Okay. So if that -- and that's next question I would have. If the contractor, as you mentioned in the release, is planning to deliver on time even though you guys aren't leasing it, does the contractor still have liability?

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [9]

--------------------------------------------------------------------------------

Well, we really don't want to get involved on the specifics of the contract. As Tom said in his prepared remarks, remember, the entire community, if it were open, was going to contribute $0.015 for 2017, so we're really talking about $0.005 or so this year if the second building does not open. So for us to talk about specifics of the contract language, I think, as Tom said, that would be not appropriate.

--------------------------------------------------------------------------------

Ryan Meliker, Canaccord Genuity Limited, Research Division - MD and Senior REIT Analyst [10]

--------------------------------------------------------------------------------

Okay. And then just moving on. Can you give us any color on University of Kentucky, when you guys put out your preleasing earlier this month and then echoed again this morning? Just you're requiring a little bit of a culture change on-campus for on-campus -- for upperclassmen to return back to campus. I'm just wondering how much of that was built into your initial underwriting and expectations versus whether it would be slower than you expected, and whether you're seeing any material pick-up recently?

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [11]

--------------------------------------------------------------------------------

Yes, on the underwriting of our University of Kentucky properties, we underwrote 95% occupancy first year for all the properties. So if we do hit our projected 95% occupancy for the year, we're optionally hitting underwriting. As we said in the release, we are, for the same-store properties at University of Kentucky, we are getting a 3% to 4% rate increase. So the rate has equaled our underwriting or maybe just a tad better. So from an underwriting perspective, we will be hitting underwriting, assuming we hit our projections. The difficulty is, and maybe it's is a little bit of hubris on our part, is to have budgeted it or included it in guidance, and expectation is 99%. that's Where it comes into play of changing the culture at Kentucky, and Chris will jump in.

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [12]

--------------------------------------------------------------------------------

We are currently, today, 96% applied. We made great progress in our applications since our last update where we were 89% applied and still feel very, very confident in our 97% -- or 95% occupancy projection for fall. And our increase in applications over the past months has increased 7% versus 1% at the same time prior year. And we've been better focused on changing the campus culture. And our mission, obviously, is to continue the enhance the upperclassman's desire to remain on-campus. But in the past, upperclassman, as early as last year, were encouraged to move off campus because the inventory wasn't available for them to stay on campus. So what we've done with our product at the University of Kentucky is make sure that we can appeal to all demographics, right, from the freshman to the upperclassmen by building in a double-occupancy residence hall, the suite style, all the way through the 4-bedroom, fully amenitized department communities, to the graduate product. So the other thing that's changing the culture on that campus is the LLP. Within these facilities, they've been able to really build some robust living and learning programs, but those take a few years to establish the upperclassmen. So the freshmen come in the first year, building the upperclassmen, which are encouraged to stay on campus. So the culture is changing and still feel very positive about the 95% occupancy.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

Our next questions come from the line of Juan Sanabria with Bank of America.

--------------------------------------------------------------------------------

Juan Carlos Sanabria, BofA Merrill Lynch, Research Division - VP [14]

--------------------------------------------------------------------------------

Just a question on the guidance. Any change in the assumptions outside of the (inaudible) for core FFO, whether it's revenue, expense or NOI at this point?

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [15]

--------------------------------------------------------------------------------

Juan, this is Billy. At this point, we're not changing any of the guidance. I mean, in the same-store revenue, we're on the lower end, expenses are trending fine and as we outlook now, NOI is still the same. So no changes in any of the detailed metric.

--------------------------------------------------------------------------------

Juan Carlos Sanabria, BofA Merrill Lynch, Research Division - VP [16]

--------------------------------------------------------------------------------

Okay. It seems like the debt that you're assuming at the end of the second quarter is maybe coming in a little bit more favorable, I guess, with the offset, the potential loss of the NOI from the Oklahoma development?

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [17]

--------------------------------------------------------------------------------

Yes, well, it's -- if the $150 million closes, it's at a blended rate of 4.26%. I think we modeled 4.5%. So that 24 bps on $150 million for 6 months is not a big number, Juan, not enough to switch any of the -- switch the guide, change any guidance ranges.

--------------------------------------------------------------------------------

Juan Carlos Sanabria, BofA Merrill Lynch, Research Division - VP [18]

--------------------------------------------------------------------------------

Okay. And then just on the occupancy front, on the same-store results, what drove that decline on an annual basis?

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [19]

--------------------------------------------------------------------------------

Revenue growth for the first quarter is consistent with our guidance of 1%. This year, we had more December expirations than prior year. But overall, our leases less than 12 months, have decreased. It's just the timing that was different, and that was expected.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Our next questions come from the line of Nick Joseph with Citigroup.

--------------------------------------------------------------------------------

Nicholas Gregory Joseph, Citigroup Inc, Research Division - VP and Senior Analyst [21]

--------------------------------------------------------------------------------

Bill, just going back to guidance, and I recognized it's unchanged and the components are remaining the same. But when you had initially put on guidance, you talked about first quarter being about 28% of the full year. It looks like first quarter results came in about $0.05 ahead of that. So is that -- are you running a little ahead right now? Has that been offset by something that's change in the back half of the year? Are there timing differences than maybe what you initially expected?

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [22]

--------------------------------------------------------------------------------

Yes, Nick. I would say that's timing. I mean, you're right. The first -- I mean, the pacing on the FFO that we've put out in guidance was historical pacing to FFO. We came in at 30% for the first quarter versus 28% in the document. And since there's no change to the overall guidance, I think the takeaway would be probably the third and fourth quarter at 16% and 35%, maybe 1% lower to get to the same 100% on a pacing basis. So no change into the total, maybe just a slight change in pacing.

--------------------------------------------------------------------------------

Nicholas Gregory Joseph, Citigroup Inc, Research Division - VP and Senior Analyst [23]

--------------------------------------------------------------------------------

That's helpful. And just in terms of the development pipeline, you mentioned Hawaii as potentially becoming a 2018 delivery. I think it was already going to be a record year without even including Hawaii, both in the terms of good number of projects as well as the overall cost. Could you talk about how you're comfortable with delivering that amount from an organizational standpoint and making sure everything remains on time and on budget, and we don't see another Oklahoma State next year?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [24]

--------------------------------------------------------------------------------

Yes, Nick, this is Tom. Over the past year, we have hired additional seasoned, both developers and construction managers, and we did that before we started the development of anything that's in our pipeline. So our staffing model is about the levels of responsibilities that the individual has is the same, and so we're -- we feel comfortable that we have the right level of staffing for our existing pipeline, but it was put in place before we started any of these. And we all hate what's happened at Oklahoma State, but we could have had 32 people on it and it wouldn't have changed. You, at some point in time, you become dependent on that general contractor to do what they contractually said they would do. So we're comfortable, yes.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Our next questions come from the line of Austin Wurschmidt with KeyBanc.

--------------------------------------------------------------------------------

Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [26]

--------------------------------------------------------------------------------

Just wanted to touch a little bit on the transaction market. You guys are tracking towards the higher end of your acquisition range, and you sound like there's some additional opportunities. So you can you just talk about what your appetite is for continued acquisitions? And then, I don't remember if you had followed up on the on-campus acquisition opportunity you talked a little bit about last year, but if there's any update there, if you could provide some additional color, that would be helpful.

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [27]

--------------------------------------------------------------------------------

Yes, so on the acquisitions, we're basically disciplined because of where cap rates are today for the core product that's pedestrian-to-campus, which is where EdR is focused. And so we monitor and we will selectively make acquisitions, particularly when we think there's substantial upside. Our 319 Bragg acquisition would be indicative of that. But given -- with existing cap rates, we're going to remain disciplined in remodeling. So we will see opportunities from time to time. The on-campus, there are several universities. Unfortunately, these things take longer than any of us would like, better exploring, basically selling their existing housing and capitalizing on it. But there's nothing definitive that I can report to you about today. But there are several universities still looking at it. Bill, you want to add to that?

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [28]

--------------------------------------------------------------------------------

Austin, this is Billy. Remember, our guidance was $100 million of acquisitions, with a targeted July 1 date, so you can have some before and after July 1, obviously. Auburn counts, so that's $28 million-or-so of the $100 million we've given guidance, so we actually still need another $70 million-or-so of maybe not quite as much, given that we closed Auburn significantly in advance of July 1, but we're still looking from a guidance standpoint, for some more acquisitions.

--------------------------------------------------------------------------------

Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [29]

--------------------------------------------------------------------------------

Okay, fair enough. Sorry, I think I was including the $99 million deal at the early start of the year.

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [30]

--------------------------------------------------------------------------------

Yes, no, that was -- remember, Corvallis was included in our actual numbers and not within the $100 million of guidance.

--------------------------------------------------------------------------------

Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [31]

--------------------------------------------------------------------------------

Okay, fair enough. And then, as far as the on-campus acquisition opportunities that are out there today, I mean, are they all with universities that meet the parameters of EdR for owning on-campus properties?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [32]

--------------------------------------------------------------------------------

Yes, they would have to, right? I mean, because our underwriting would be the same, we'd have to somehow be enhanced by the university with some kind of guarantee.

--------------------------------------------------------------------------------

Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [33]

--------------------------------------------------------------------------------

Okay. And then just lastly, when you kind of -- when you look across the enrollment growth across the portfolio, some of the regions that have been more flattish and below average, just curious about how you think about continuing to manage the portfolio, just portfolio management, as new acquisition opportunities arise?

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [34]

--------------------------------------------------------------------------------

Well, I think, as you know, Austin, since this management team took over in 2010, we've sold 70% of the assets that were in existence on January 1, 2010. So we've had an active recycling program. The metric that you quote is a good metric, but it's not really the only one, right? There's numerous great universities that can set their enrollment at whatever they would like but have chosen to not increase their enrollment, kind of like Texas and Michigan, and some. So that metric that you quoted is a good metric, but we do look at a variety of other things. For this year, we have nothing planned to sell. Tom, in his prepared remarks, mentioned Oklahoma, that we are selling, which is a one-off. But from a sales standpoint, we're not looking to sell anything this year. From an acquisition standpoint, we look at a variety of metrics, and when you look at my prepared remarks on what our portfolio characteristics are, those are similar characteristics of what we look for in buying an asset, of which enrollment growth is one.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

And our next questions come from the line of David Corak with FBR.

--------------------------------------------------------------------------------

David Steven Corak, FBR Capital Markets & Co., Research Division - VP and Research Analyst [36]

--------------------------------------------------------------------------------

Thank you for the comments on Kentucky, but I was hoping to get a little bit more granular there. Could you walk us through kind of the enrollment trends that you guys initially underwrote at the university? And then what's transpired since? And what are your projections going forward there? And then, maybe give us a sense as to the same kind of numbers for students living on-campus.

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [37]

--------------------------------------------------------------------------------

Sure, I'll do the first part. When -- I don't have the scheduled in front of me, so my numbers may be a little bit off. But when Dr. Capilouto took over in 2010 or '11, they had something like 4,200 freshmen enrolled in campus. We have, I think, a grand total enrollment of about 25,000. Now they've gotten to a point where they have about 5,000 freshmen that come to campus, and their enrollment is 29,000 to 30,000. Their projections, going forward, I probably shouldn't disclose, probably can't disclose. But the projections going forward are relatively consistent with that. So the numbers that we -- the numbers that UK is experiencing are the numbers that we thought they were going to have when we did the initial underwriting of the program in 2011, so no real change there. What was the second point again? I forgot.

--------------------------------------------------------------------------------

David Steven Corak, FBR Capital Markets & Co., Research Division - VP and Research Analyst [38]

--------------------------------------------------------------------------------

The students living on-campus, and then, just overall, enrollment growth. But yes, you hit the first growth.

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [39]

--------------------------------------------------------------------------------

Students on campus, as you know, as we said many times, when we took over -- or when we started work at University of Kentucky, the average age of their dorms was, I think, 47 years. That's not exactly right, it's approximately right. So they did not have a freshman live-on and still do not have a freshman live-on. So what was -- and the reason why they didn't have a freshman live-on is because their product was not very good, in their opinion. So we took over in 2011, building properties. Early on, they had really 0 upperclassmen living on-campus, and it really wasn't until last year -- no, 2015, when we started having enough supply where upperclassmen could be housed. So in 2015, there was a big uptick, double-digit uptick, in the number of upperclassmen living on-campus, one, because we had available product; two, because we had a nice product. Last year, the increase wasn't as much. It was single digits, I don't remember the exact number. So what we're hoping for this year was another high single-digit increase in upperclassmen applying to live on-campus. That hasn't happened. It's ahead by 6% or 7%, I think, but there's still plenty more time to go in the application process. But we thought, out of abundance of caution, that the best data that we have back a month ago was that we were going to get to 95%, and we thought we should go ahead and disclose that. So right now, we're still projecting 95%. As Chris said, the number of applications increased 7% over -- since our last update, while versus the prior year, it only increased 1%. So we're making up ground. We're feeling pretty good about our projection.

--------------------------------------------------------------------------------

David Steven Corak, FBR Capital Markets & Co., Research Division - VP and Research Analyst [40]

--------------------------------------------------------------------------------

Okay. And just sticking with Kentucky, how does your kind of upperclassmen-oriented product compare, the pricing there, compare to the off-campus product, and maybe the pedestrian off-campus product? And how has that spread moved in the past couple of years?

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [41]

--------------------------------------------------------------------------------

The pricing for our upperclass product apartments, in general, is pretty comparable to the off-campus market. This is our first year for our off-campus product to really come out with a full apartment. I don't study a lot...

--------------------------------------------------------------------------------

David Steven Corak, FBR Capital Markets & Co., Research Division - VP and Research Analyst [42]

--------------------------------------------------------------------------------

I mean, more competitors' products, Chris.

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [43]

--------------------------------------------------------------------------------

I don't study the off-campus market in detail, or haven't in the past until this year necessarily, and so I have to look for more information. I know there has been more aggression coming from those -- I hear about it in conferences, the more aggression from those off-campus competitors, from pricing and concession pressures.

--------------------------------------------------------------------------------

David Steven Corak, FBR Capital Markets & Co., Research Division - VP and Research Analyst [44]

--------------------------------------------------------------------------------

Okay. And then just one last one, maybe for Tom. Do have a sense of how large the Cornell -- the new Cornell deal will be? Obviously, some mixed-use product there, but maybe just a ballpark of range of a bed count?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [45]

--------------------------------------------------------------------------------

Yes, Randy loves to provide specific information, but the fact that the kickoff meetings are actually happening today with stakeholders, and let me go here because I think this part will be okay with Cornell. So several months ago, the university did a competitive RFP process, and EdR was selected by the university and also approved by their board to do this redevelopment of East Hill Plaza. And East Hill Plaza is currently an envisioned strip mall, with out parcels, with doughnut shops and all, and the vision that the administration has in Cornell is very much stores centered if you've seen the project that we did at UConn. And so this would be done in multiple phases. The first phase, currently targeting 2020, might have roughly 200 residential units above commercial. It's contemplated that the university itself will lease 50,000 square feet of office space, and then some new commercial in retail. A lot of work to do, but an exciting project.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

Our next questions come from the line of Alexander Goldfarb with Sandler O'Neill.

--------------------------------------------------------------------------------

Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst [47]

--------------------------------------------------------------------------------

Maybe, Tom, if we could start with you. You mentioned the delays at Oklahoma, and at the InterFace Conference, there were a number of participants down there that talked about development taking longer to stabilize and the need to focus more on sort of a target date for opening, whether it's July or even moving it to May. Given that supply has sort of remained constant the past few years, and there's a lot better preleasing data clarity in the marketplace, what do you think is sort of driving all this recent discussion about just taking longer for projects, either to deliver or to stabilize, meaning they deliver on time but just takes longer for them to get up to that 95% occupancy?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [48]

--------------------------------------------------------------------------------

This is my somewhat subjective opinion, the -- but they're interrelated here. The late deliveries are primarily from developers being overly aggressive or being in markets where there wasn't an adequate subbase. And because the number -- I mean, it's taboo to have late deliveries, so that's why we're anguishing so over much over up on the state. In our company's history, we've never had a late delivery. That's not been the case with particularly a lot of merchant developers. And so when you have that situation, which has happened at Oklahoma State, for instance, it's market-specific. Where there is late deliveries, the market becomes very reluctant about whether or not the new development is going to be delivered on time. And so that needs to be a part of our underwriting. It -- like it has been to some level, but we have been confident and successful in achieving that first year targeted leasing for the most part, but it clearly is a new dynamic and it's market-specific based on whether or not that market has experienced late deliveries.

--------------------------------------------------------------------------------

Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst [49]

--------------------------------------------------------------------------------

But going forward, do you think that this is going to be an increasing trend, where developments instead of being delivered sort of 95-plus on September 1, we're going to increasingly see more folks have, whether it's 2 years to stabilize, or just projects needing to start earlier and, therefore, delivering earlier? Maybe it changes the cost structure because there's more carry time before they start opening to students.

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [50]

--------------------------------------------------------------------------------

One of the items in our contracts, we actually require that the general contractor complete the project a good 45 days before school starts, and we've been doing that for a while, candidly have that situation at Oklahoma State. So that in itself is not the total answer. I really think that this is going to be a market-by-market situation, depending upon the prior experiences in that given marketplace.

--------------------------------------------------------------------------------

Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst [51]

--------------------------------------------------------------------------------

Okay. And then the second question is, at UK, given that it's roughly 20% or so of the portfolio, Randy, at the InterFace, you mentioned a desire to sort of bring that down, over time. What is a reasonable amount of time for that to come down as you grow the rest of the portfolio? And as you guys have had time to think, is there sort of a general sense of how much exposure you want to any one market or school?

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [52]

--------------------------------------------------------------------------------

Yes. So today, our on-campus UK beds represent about 18% of our budget NOI for 2017. When you get to 2019, based upon all of our deliveries that we already announced, so no acquisitions, no sales, that number decreases to about 15%. As we've mentioned in the past, for off-campus, we're going to limit any one campus to less than 10%. And I think when you look at our supplemental, the highest we have is 5% or 6%. So to your question, exactly, for the on-campus investments, we do think that you can have a higher concentration because we do think there is safety at being on-campus. But look, it's -- everyone knows what has gone at the University of Missouri, where enrollment has significantly decreased over the last few years because of the racial issues. So we had the opportunity to do all of this construction at UK. We weighed the concentration issue along with everything else we weighed when we decided to do the project, and I'm glad we did. My expectation is 2019, it's 15%. I would expect that we would be a net acquirer of assets between now and then, so that number maybe gets as low by 10% or 12% by '19. So I have not come up with a definitive number that I'm willing to limit the concentration on on-campus assets because I believe the on-campus assets are the best assets that we can own for our shareholders. But as you know, as the company continues to grow its denominator, the likelihood of any university getting double digits gets less and less.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

Our next questions come from the line of Drew Babin with Robert W. Baird.

--------------------------------------------------------------------------------

Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [54]

--------------------------------------------------------------------------------

Quick question on the development and management, at least for the quarter. The $600,000 cost savings that you had in 1Q from the Berkeley asset, I was hoping it was in guidance for the year, or is this something that -- essentially, it was something that was pulled forward further into the year back to 1Q? Or is it something that just wasn't in guidance, period?

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [55]

--------------------------------------------------------------------------------

Drew, this is Billy. We had it in guidance. The exact timing was unknown because you've got to settle out with everybody in the university on the ultimate savings. So yes, it was in guidance. I don't recall -- Drew, yes, we did have it in first quarter. So in guidance, first quarter.

--------------------------------------------------------------------------------

Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [56]

--------------------------------------------------------------------------------

Okay. And then a related question on the new third-party development, University of South Florida and Thomas More. Will there be any kind of late '17 benefit from those? Or are those going to be kind of further down the road and they'd start to generate revenue for you?

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [57]

--------------------------------------------------------------------------------

Yes, I believe it'll be insignificant in '17, Drew. It'll be '18.

--------------------------------------------------------------------------------

Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [58]

--------------------------------------------------------------------------------

Okay. And lastly, and sorry if I missed this. Could you disclose the cap rate on pricing for the Oklahoma asset that you're disclosing now?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [59]

--------------------------------------------------------------------------------

Yes, sure enough. Actually, the buyer on The Reserve at Stinson, it's basically a value-add investment, and so therefore, the purchase price was based more on either replacement cost or perceived stabilized value-add. But if you looked at our trailing 12-month NOI, the property was actually -- is being sold at a 3 cap. But I'm sure that the buyers' stabilized yield in their forecast, going forward, is somewhere in the mid-6s.

--------------------------------------------------------------------------------

Operator [60]

--------------------------------------------------------------------------------

Our next questions come from the line of Tom Lesnick with Capital One.

--------------------------------------------------------------------------------

Thomas James Lesnick, Capital One Securities, Inc., Research Division - Analyst [61]

--------------------------------------------------------------------------------

First, I just wanted to follow-up on Drew's question regarding the third-party development income. It looks like you guys have 3 other projects, all slated to deliver here in the summer of 2017. Other than the remaining fees to earn, how much is being assumed on those remaining 3 with regards to potential kickbacks to you guys on delivering on-time and on budget -- or under budget, I should say?

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [62]

--------------------------------------------------------------------------------

You really didn't say kickback, did you, Tom?

--------------------------------------------------------------------------------

Thomas James Lesnick, Capital One Securities, Inc., Research Division - Analyst [63]

--------------------------------------------------------------------------------

No, no, not like that, of course. But you guys get a piece of the savings coming back to you for...

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [64]

--------------------------------------------------------------------------------

Yes, Tom, when we do our budgets and internal forecastings, we don't -- this early in the cycle of a project, we don't include relating to savings. So it would be late third quarter, fourth quarter, maybe before we have a firmer idea of whether there's any significant savings coming out of those projects since they don't open until fall of '17.

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [65]

--------------------------------------------------------------------------------

And like in Berkeley, we may not be able to recognize that until first quarter of '18.

--------------------------------------------------------------------------------

Thomas James Lesnick, Capital One Securities, Inc., Research Division - Analyst [66]

--------------------------------------------------------------------------------

Got it. Okay, that's helpful. And then for the quarter, it looked like there was a pretty large swing on the income tax line. Just wondering if you could explain a little bit what was going on there and how that might trend through the course of the year?

--------------------------------------------------------------------------------

Edwin B. Brewer, EdR - CFO, EVP and Treasurer [67]

--------------------------------------------------------------------------------

Yes, the trend for the course of the year is, we still believe our guidance for that line item, which was less than $1.5 million, is where we'll end up for the year, Tom. It was really just a first quarter timing item. But the explanation is, in our team, GAAP accounting. A year ago, FASB issued ASU 2016-09, which required that certain tax deductions related to vesting of restricted stock go through the income statement rather than equity, so everybody's eyes here across my table are glazing, so I'm sure yours are too but that's what it was. It's really a one-timer in the guidance. It'll essentially zero back out by the end of the year.

--------------------------------------------------------------------------------

Thomas James Lesnick, Capital One Securities, Inc., Research Division - Analyst [68]

--------------------------------------------------------------------------------

Got it. That makes sense. And then, turning to NC State for a second, I know that you guys are thinking about how reposition that asset. Any progress there from the last update in terms of how you guys are thinking about that? Or I'm just wondering if there's any color you could shed there.

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [69]

--------------------------------------------------------------------------------

Really no color. We are actively involved in a variety of avenues that, if successful, will not occur until, at best, the end of the year.

--------------------------------------------------------------------------------

Operator [70]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from the line of Ryan Lum (sic) [Ryan Burke] with Green Street Advisors.

--------------------------------------------------------------------------------

Ryan Cole Burke, Green Street Advisors, LLC, Research Division - Analyst [71]

--------------------------------------------------------------------------------

To stay on the topic of third-party development, was it the schools' choices to go the third-party route rather than utilizing EdR's ONE Plan arrangement? Or was that EdR's decision for the 2 new third-party?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [72]

--------------------------------------------------------------------------------

With the 2 new third-party being smarter schools, do not believe we would have it be a ONE Plan, right, because we underwrite with the creditworthiness of the schools. So in both those cases, the schools were looking at, if you would, third-party bond financing. And in both cases, they ran competitive RFP process and the normal cast of characters submitted. In one case, Thomas More, it was actually qualifications that they make their selection. But indeed, the South Florida-St. Petersburg was a kind of full-blown RFP. So I think the university, I don't whether they realize, that those of us that provide equity would be unwilling to do so, but because the actual proposals in those cases came out, seeking third-party financing.

--------------------------------------------------------------------------------

Ryan Cole Burke, Green Street Advisors, LLC, Research Division - Analyst [73]

--------------------------------------------------------------------------------

Great. And then just one more on the University of Oklahoma disposition. A quick rationale on the decision to sell there, and if you can also add color on the supply-demand balance in that market, if you can.

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [74]

--------------------------------------------------------------------------------

Obviously, our decision to sell was based on the fact that we and the buyer have different views as to the future economic viability in that particular -- that asset in that marketplace because of the project's location. Obviously, they're betting that by doing improvements on all of it they could turn around the economics. Chris, as far as the market?

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [75]

--------------------------------------------------------------------------------

Yes, Oklahoma is one of our top 4 there, where the supply exceeds 5% or 7% new supply coming into the Oklahoma market this year.

--------------------------------------------------------------------------------

Operator [76]

--------------------------------------------------------------------------------

The next questions come from the Gwen Clark with Evercore.

--------------------------------------------------------------------------------

Gwendolyn Rose Clark, Evercore ISI, Research Division - Research Analyst [77]

--------------------------------------------------------------------------------

Can you just talk about the appropriate cap rate for noncampus assets in your mind?

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [78]

--------------------------------------------------------------------------------

Well, when we underwrite, our initial yields are in the 6.5% to 7% range. As you know, there's not been any assets on-campus that have traded since American Campus, and us, essentially own them all, and none of this are sold. Pedestrian-to-campus assets at similar type universities trade in the low-5s, 5% to 5.25%, and we believe here at EdR that the downside protection you have for on-campus assets is immense. So I've seen others value these assets at 4.5% to 5%. I think it's on a lower end of that range, but we've not had any market transactions to test those numbers.

--------------------------------------------------------------------------------

Gwendolyn Rose Clark, Evercore ISI, Research Division - Research Analyst [79]

--------------------------------------------------------------------------------

Okay. And then, just on the topic of supply, can you just run through a few of the markets that are seeing the most of it and how your assets have performed in those?

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [80]

--------------------------------------------------------------------------------

This is Chris, Gwen. In our portfolio, we call out 4 markets that have 5% or greater supply. And one of those markets is Boise State University, that's our on-campus project that's opening this year, and it's currently 97% applied. Oklahoma, I think we've discussed, it's 7% supply that it is in preparation for disposition, although it is 22% ahead of last year or prior year in leasing velocity. Texas Tech is the market in which we're seeing the most new supply. There's over 12% new supply there, and we are seeing pressure. Texas Tech has been -- is the one market where we are seeing pressure because of supply and then flat enrollment in terms of rate reductions and concessions. I have 2 assets there, 860 beds approximately and I'm sitting -- I'm holding my own on rate but I'm sitting about 7% behind in leasing velocity and I'm making adjustments. And then Missouri is the final market where we see supply over 5%, and I'm actually flat to prior year, although if you remember, prior year was at 81% occupancy, but I'm not -- the supply there is not pushing. It's not helping me get ahead of prior year, but it's not hurting me either.

--------------------------------------------------------------------------------

Operator [81]

--------------------------------------------------------------------------------

Our next questions come from the line of Wes Golladay with RBC.

--------------------------------------------------------------------------------

Wes Golladay, RBC Capital Markets, LLC, Research Division - Associate [82]

--------------------------------------------------------------------------------

Can you give us an update on the competitive landscape for these ONE Plan deals, looking at the 8 campuses, or the 8 companies that are targeting the UC system? And how many of these companies where around maybe 10 years ago?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [83]

--------------------------------------------------------------------------------

Yes, so actually, I believe all of them were around 10 years ago, but with much lesser volume and all. As I think through the list, yes, that's pretty much the same group of people that we have seen, but there's only a few of us that are on a national level. But there's not any new player that I can think of. Like Hunt is one that you may not have knowledge of, but the Hunt Group has been doing housing and did student housing 20 years ago. So some people have resurrected themselves, but it's pretty much the same cast that you see across the country.

--------------------------------------------------------------------------------

Wes Golladay, RBC Capital Markets, LLC, Research Division - Associate [84]

--------------------------------------------------------------------------------

Okay. And then, looking at the general contractors, how hard is it to source a good one? Are you having to move down the food chain with the big expansion of projects? We're from some other companies and other industries that they're having a little bit of a hard time finishing their redevelopments and renovations. Are you running into any of those issues where the quality is just a little bit lower?

--------------------------------------------------------------------------------

Thomas Trubiana, EdR - President and Director [85]

--------------------------------------------------------------------------------

We're trying not to allow that to happen by partnering and in cases where it makes sense, traveling with known general contractors, where we've had a good track record, someone like [Nasser], who we've done Kentucky. So if it's within their geographic reach where they have a good, strong subbase, we try to pair with them. It's very important to have a good contractor and someone that has a great reputation and preferably someone you've worked with in the past.

--------------------------------------------------------------------------------

Operator [86]

--------------------------------------------------------------------------------

(Operator Instructions) Our next questions come from the line of Carol Kemple with Hilliard Lyons.

--------------------------------------------------------------------------------

Carol Lynn Kemple, Hilliard Lyons, Research Division - VP and Analyst for Real Estate Investment Trusts [87]

--------------------------------------------------------------------------------

On the 383 beds that will be done at Northern Michigan in December, I think I remember something in the past, but I want to make sure I'm correct. Are there going to be students moving out of other dorms to move in there? Or will those beds be vacant until next year?

--------------------------------------------------------------------------------

Christine D. Richards, EdR - COO and EVP [88]

--------------------------------------------------------------------------------

Yes, there will be students in January, Carol, that will move from other on-campus housing into the new facility.

--------------------------------------------------------------------------------

Operator [89]

--------------------------------------------------------------------------------

Since we have no further questions at this time, I'd like to turn the floor back over to Randy Churchey for closing comments.

--------------------------------------------------------------------------------

Randall L. Churchey, EdR - Chairman and CEO [90]

--------------------------------------------------------------------------------

Thanks, everybody, for your time and attention and look forward to seeing many of you at NAREIT in a few weeks. Thank you.

--------------------------------------------------------------------------------

Operator [91]

--------------------------------------------------------------------------------

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your for participation.