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Improved Pre-Leasing Activity at EdR

Zacks Equity Research

The pre-leasing activity this fall is expected to drive top-line growth of Education Realty Trust Inc. (EDR) (commonly known as “EdR”). The company is experiencing solid and increasing pre-leasing statistics, enabling it to reach its target levels.

As of Aug 13, 2013, EdR’s fall 2013 same community pre-leasing occupancy was 90.9%. This reflects a 200 basis points (bps) progress over the prior year as well as a 20 bps improvement over the pre-leasing statistics revealed at the Jul 29 second-quarter earnings report.

Moreover, for EdR’s communities grouped under the “Total Tier 1 and 3” category, pre-leasing occupancy expanded 60 bps ever since the Jul 29, 2013 report. Also, as of that date, 11 communities, which constitute the non-same communities category, are 92.0% pre-leased.

The company currently expects same community net rental rates to improve 2%. As per its guidance issued in Feb 2013, same-community revenue is expected to grow 3% to 5% for fall 2013. Notably, with around 4 significant weeks left in the leasing cycle this year, the company’s current rate growth and combined same community occupancy already leads to the revenue range guided earlier.

EdR is one of the leading owners, developers and managers of collegiate housing in the U.S. The company owns or manages 70 communities in 24 states with more than 38,000 beds. The ideal acquisition targets of the company are generally located in markets that have stable or increasing collegiate populations and high barriers to entry.

The company continues to benefit from favorable supply/demand dynamics. With reasonable near-term supply of new product (due to decreased state appropriations) and rising demand (driven by increasing enrollment due to echo boomers opting for college education), EdR remains well poised to maintain its growth curves going forward.

The company is also making opportunistic acquisitions and as a result is able to increase its total revenue, net operating income and assets. Simultaneously it is benefiting shareholders by making annual dividend increase of at least 10% over the last two years.

EdR currently carries a Zacks Rank #3 (Hold). However, other REITs that are performing better and deserve a look include Campus Crest Communities, Inc. (CCG), Colonial Properties Trust (CLP) and Sun Communities Inc. (SUI), all carrying a Zacks Rank #2 (Buy).

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