American Campus Communities, Inc.
Q4 2018 Earnings Call Transcript

Published: 20 Feb 2019

[Operator:]

Hello and welcome to the American Campus Communities 2018 Fourth Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Ryan Dennison, Senior Vice President of Capital Markets and Investor Relations. Please go ahead, sir.

[Ryan Dennison:]

Thank you. Good morning and thank you for joining the American Campus Communities 2018 fourth quarter and year-end conference call. The press release is furnished on Form 8-K to provide access to the widest possible audience. In the release, the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg. G requirements. Also posted on the company website in the Investor Relations section, you’ll find an earnings materials package which includes both the press release and a supplemental financial package. We are hosting a live webcast for today’s call which you can access on the website with the replay available for one month. Our supplemental analyst package and our webcast presentation are one and the same. Webcast slides may be advanced by you to facilitate following along. Management will be making forward-looking statements today as referenced in the disclosure in the press release, in the supplemental financial package, and in SEC filings. Management would like to inform you that certain statements made during this conference call which are not historical facts may be deemed forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in any forward-looking statement are based on reasonable assumptions. They are subject to economic risks and uncertainties. The company can provide no assurance that its expectations will be achieved and actual results may vary. Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time-to-time in the company’s periodic filings with the SEC. The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release. Having said that, I’d now like to introduce the members of Senior Management joining us for the call

[Bill Bayless:]

Thank you, Ryan. Good morning and thank you all for joining us as we discuss our fourth quarter and full year 2018 financial and operating results. I'd like to start by thanking the team for another year of same-store growth in rental rate, rental revenue and net operating income making 2018 the 14th consecutive year of growth since our IPO. The stability of cash flows that our sector has consistently demonstrated continues to attract institutional investors both domestically and globally. Transactions during the year reached a record exceeding $11 billion as cap rates further compressed and are now on par with multi-family. 2018 also brought in some first for our company, during the year we successfully completed the strategic joint venture partnership with Allianz which opened up another attractive source of capital to fund our value creating development pipeline and as William will discuss we recently commenced construction on housing for the Disney College Program, a testament to one of our core values to drive evolution within the industry. Overall, despite the uncertainty within the macro economy, fundamentals in the Student Housing Industry remain healthy and we believe that the stability of our business will continue to make Student Housing one of the most sought after investments globally. With that, we at ACC look forward to 2019 as we have the opportunity for accelerating revenue and NOI growth over the prior year. I'll now turn it over to Jennifer Beese, our Chief Operating Officer to provide color on our operational results.

[Jennifer Beese:]

Thanks, Bill. We are pleased to report another year of internal growth now marking the 14th consecutive year since our 2004 IPO of the same-store growth in rental rates, rental revenue, and NOI. As seen on page S-5 of the supplemental, quarterly same-store property NOI increased by 0.1% on a 2.2% increase in revenues and an increase in operating expenses of 5.3%, which was primarily driven by anticipated increases in property taxes due to reassessment in several markets. For the full year 2018, same-store NOI increased 1% on a 1.9% increase in revenue and a 3% increase in expenses. Our operational and asset management efforts resulted in annual expense growth for our controllable categories of approximately 1.5%. Turning to our full year 2019 outlook, we are projecting same-store NOI growth of 1.6% to 3.4%, based on total revenue growth of 2.3% to 2.9% and expense growth of 2.3% to 3.1%. Our revenue guidance takes into account our end place leases for the end of 2018-2019 academic year lease term as well as our projections for the 2019-2020 lease up. We are projecting opening fall same store rental revenue growth for the 2019-2020 academic year of 1.5% to 3% based on the combination of occupancy and rental rate growth. As always the low and high ends of our revenue guidance reflects execution risk of our fall lease up backfilling short term leases, some are leasing initiatives and out coming our other income growth projections. On the expense side our same store expense growth expectations of 2019 are inflationary in majority of our categories. Property taxes, our largest expense category was the most meaningful expense growth driver in 2018. It continued to be the largest contributor to our budget expense growth in 2019 at roughly 4%. The growth is lower than the increases seen in 2018 as we do not anticipate the same level of reassessment in 2019. Turning to new supply, the environment rate remains consistent with what we discussed on our Q3 call. For fall 2019, in ACC 69 markets we are projecting new supply in 36 of those markets totaling approximately 28,700 beds or 1.3% of enrollment in line with our long-term average. Of the 36 markets with new supply this year, 20 had no significant new supply last year. The new supply we are tracking this year is much less concentrated than what was delivered in fall 2018. As the average number of new beds per market receiving new supply is expected to decrease 20% from last year. This year’s new supply is also less concentrated from an NOI impact perspective as a largest 10 new supply markets represents approximately 18% of ACC’s total NOI versus 29% last year. We look forward to updating the market as we progress through the year. I will now turn the call over to William to discuss our investment activity.

[William Talbot:]

Thanks, Jennifer. Turning first to development, we are excited to have executed the ground lease and broken ground on the first five phases of our 10,440 bed $615 million development project that will serve participants of the Disney College Program. The community will be delivered in multiple phases, but the first phase delivering 778 beds in May 2020 and will include one of two 25,000 square foot amenity centers and the 25,000 square foot Disney Education Center. Subsequent phases will deliver over the following years with final completion expected in May 2023. The 10 phased development is expected to produce a 6.8% nominal yield upon stabilization. We also executed the ground lease and began construction in February on our second phase ACE development on the University of Southern California Health Sciences campus. The 272 bed, $42 million project is the continuation of our highly successful 456 bed first phase community that has had an average waitlist in excess of 200 persons since opening in 2016. The new phase is expected to deliver in time for the 2020 academic year. With this progress, we are currently under construction on 8 owned developments in pre-sales totaling 9,011 beds and $875 million targeted to deliver between 2019 and 2021. All ACC-owned developments are expected to achieve between a stabilized 6.25% to 6.8% nominal yield and pre-sell developments are targeting between a 5.75% to 6.25% yield. With regards or Fall 2019 developments, we've seen excellent lease-up progress with the five communities currently 87% preleased for the upcoming academic year. With regard to the on-campus third party development, we are currently under construction on five third party projects on the campuses of the University of California, Irvine; The University of California, Riverside; The University of Arizona, The University of Illinois, Chicago; and Delaware State, with an additional three to five projects expected to break ground in 2019. The redevelopment of Calhoun Hall honors residence at Drexel University, which will house first year honor students is now a third party development. Drexel has traditionally used their balance sheet to own all their first year housing and relied on the ACE program to fund all other housing. The 400 bed project is expected to deliver for occupancy and time for this academic year. Turning to the transaction market, 2018 produced another record year of investment in the Student Housing sector. According to CBRE’s 2018 year in Student Housing report, transactions totaled over $11 billion for 2018, highlighted by the Greystar Blackstone acquisition of EdR. Cap rates continue to compress in 2018 with numerous core pedestrian properties trading in the low 4% cap rate range, including our sale of three assets to Greystar at a 4.1% economic cap rate, on our sale of a minority interest of existing assets into a joint venture at a 4.4% economic cap rate. It should be noted that investment volume remains strong and cap rates continued to compress during the fourth quarter despite increasing interest rates. Investor interest remains very strong for student housing product if abundant financing resource is widely available. With that, I'll turn it over to Daniel to discuss our year-end financial results and 2019 guidance.

[Daniel Perry:]

Thanks, William. Last night, we reported the company’s final financial results for 2018including fourth quarter FFOM of $100.2 million or $0.72 per fully diluted share, and full year FFOM of $319.8 million or $2.31 per fully diluted share. This was in line with the midpoint of our updated guidance. As Jennifer discussed, same-store NOI growth of 1% in 2018 was driven by a 1.9% increase in same-store revenues and 3% increase in same-store expenses which was within 10 basis points of our original guidance to midpoint provided at the beginning of the year. With regards, the new store properties, our 10 development and presale development properties opened in fall 2018 fully stabilized. Their performance combined with the strong year to leasing results for our 2017 development and acquisition properties resulted in total new store NOI that was above the high end of our original guidance for this group. As we look to 2019, we expect to see an acceleration in same-store NOI growth driven by both higher revenue and lower operating expense growth relative to 2018. Moving to capital structure. As of December 31, 2018, the company's debt to enterprise value was 34.6%, debt to total asset value was 36.5% and the net debt to run rate EBITDA was 6.3 times. As you will see in our own development update on page S-10 of the earnings supplemental, we have commenced construction on $765 million of development for delivery through 2021 with $525 million remaining to be funded over the next three years and the capital allocation and long-term funding plan on page S-16. We reflect the additional phases of the Disney project through delivery in 2023 as well as the remaining funding on our pre-sell development projects. The refunding mix of cash available for reinvestment, additional debt, and equity joint venture and/or disposition capital, we anticipate maintaining a debt to total assets ratio in the mid-30s and a net debt to EBITDA ratio in the high-5s to low-6s. Our capital plan for 2019 includes approximately $100 million to $190 million in proceeds from dispositions and the sale of a minority joint venture interest in existing properties. The already completed increase in our line of credit from $700 million to $1 billion and a new $200 million term-loan anticipated to close in the second half of the year. We also continue to have plans for an unsecured bond issuance, most likely in early 2020. To mitigate interest rate risk on that offering, we have entered into a 10-year treasury swap on half the expected issuance size. Finally, turning to our 2019 earnings outlook, we have provided an FFOM guidance range of $2.35 to $2.45. You can turn to S-17 and S-18 of the earnings supplemental to get complete details on each of the components of our guidance. One specific item impacting our earnings guidance that is not consistent year-over-year is that under the new lease accounting standard which I'm sure you have all been following, starting in 2019 we have to expense certain initial leasing and marketing costs that historically were capitalized. These expenses will show up in our new store operating expenses going forward and are expected to be approximately $1 billion in 2019. Excluding these costs FFOM guidance would have been $2.41 per share at the midpoint in line with street consensus. Other than that some of the major assumptions in our outlook are as follows. Same-store property NOIs are expected to increase 1.6% to 3.4% driven by 2.3% to 2.9% revenue growth and 2.3% to 3.1% operating expense growth. Our same-store revenue growth range includes the contribution to the first quarter and part of the second quarter of the 3.6% rental revenue growth achieved this past fall from our 2018-2019 academic year same-store lease-up. When we move into the summer semesters as typically experienced, we expect to see lower seasonal revenue growth impacting the second and third quarters. And finally, we're targeting a 2.25% rental revenue growth midpoint for our 2019 lease-up which will contribute to the third and fourth quarters. Our same-store expense growth range is primarily driven by property taxes and salaries and benefits, which together represent over 40% of total operating expenses. Both are projected to increase approximately 4% in 2019 with most notably some moderation in property tax growth relative to the 8.3% experienced in 2018 due to significantly less impacts from reassessments expected in 2019. Also third-party fee revenue in the range of $26 million to $30 million is included in guidance for the year. This includes three to five third party developments projects that have been awarded to ACC and are expected to close during the year. As noted in our guidance detail slides in the supplemental, this year we’re taking over facilities management of the existing Disney College Program housing, until they are taken offline as our new internship housing at Disney is delivered into service. As part of this facility's management agreement, the existing staff will stay in place with Disney reimbursing ACC for the overhead cost of those employees, as a result from an accounting perspective we are required to increase both third-party revenue and expenses by the estimated $3.2 million in reimbursement and overhead costs. With that I'll turn it back to the operator to start the question-and-answer portion of the call.

[Operator:]

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And this morning’s first question comes from Shirley Wu with Bank of America.

[Shirley Wu:]

So given your experience that you've experienced so far with the elevated supply at FSU what do you guys plan on doing differently going into 2019 and what's included in your assumptions to guidance?

[Bill Bayless:]

I'm sorry Shirley, can you restate that question we didn't fully catch it here?

[Shirley Wu:]

Okay. So given like the elevated supply at some of the schools like FSU, you have quite a track record with to high supply. So what do you plan on doing differently going into 2019 and how much of that have you assumed in guidance?

[Bill Bayless:]

Yeah in Tallahassee is one of the marks that we talked about on last quarter's call, but certainly given the supply that’s coming in is an area of a short-term concern for us. From a long-term perspective we’re very comfortable with our investments in the Tallahassee market and think they will do well over the long-term and meet our yields. Obviously last year We were a little conservative in our guidance this year given the new supply that is coming in, we had a little bit of overall growth plan than the guidance I want to say was about 1.5% to 2% overall in overall rental revenue consisting of obviously [indiscernible] rate. It's still early, but we are doing extremely well in Tallahassee this year. Our velocity is significantly outpacing last year. And so, we believe we are in a position that we will do okay in Talla from what we've assumed in our guidance.

[Shirley Wu:]

Got it. And so, so quick to that to your Disney program. So it’s certainly very interesting how you guys have pivoted from a traditional fin housing to Disney in terms of development. What are your thoughts about mainly getting into corporate housing or the front – the front business. Is that your core?

[Bill Bayless:]

Yeah, and while Disney would be considered corporate housing as these students are employees of Disney. It was a very natural pivot for us given that. Again the students that we are housing at Disney are indeed the exact same target market that we have been serving throughout the company's history. And so, it's – it's in many case, the same 18 to 22 year old, in some cases folks attending the exact same university that we’re already serving. And so, from a floor plan design, from a programmatic design, the development of the Disney Education Center is exactly on par with all the Honors college developments that we've done at ASU Northern Arizona, University of Arizona. And so, it is a very consistent pivot. So at this point in time, it made great sense for us and we haven't made any commitments or explorations of a definitive nature beyond that program.

[Operator:]

Thank you. And the next question comes from Nick Joseph of Citi.

[Nick Joseph:]

Thanks. How successful were you on tax sell in December and BINleases [ph]. I mean given that what you expect when U.S.-Middle revenue growth to be.

[Bill Bayless:]

Yeah, Nick It was a really good year for us. As we mentioned on last call we had about 150 additional December ending leases. We were very successful when the backfill, the team did a great job. The one notation that I would make is that those backfilling of leases typically those December ending leases are at a premium price to the market rate because of the short term nature and then we backfill them in January. They’re either at market or sometimes at a discount to market. That’s candidly what causes a little bit of the seasonality and why you typically see about a 20 point BP diminishment in rental revenue cause of the rate variation in the backfilling. Also on an oxy basis we did very good -- rent prospect we wouldn’t expect more than 10 basis points to 20 basis points diminishment from the 3 6.

[Nick Joseph:]

Great. Thanks. And then what’s the expected development spend in 2019 and then based off of the 2019 sources of capital you discussed. Where do you expect net debt to EBITDA to be at the end of the year?

[Daniel Perry:]

Yeah, Nick this is Daniel. So if you look at, I mean we really look at it not just 2019 because we have development under construction for both 2019 and 2020 that we’re committed on. And so when we look at the amount of spin that we have throughout that time period it’s about $590 million of development spend to be funded and also the buyout of our pre-sell developments. And when we look and also if you’ll notice on our capital funding plan page we have one less development for delivery in 2019 than we had last quarter with the Drexel Calhoun hall redevelopment converting to a third party deal. So that took about $42 million worth of development funding out but as you go through the funding at $519 million, we obviously have cash on hand of $71 million, about $60 million a year in free cash flow available for reinvestment. Beyond that we would expect to fund the remaining $400 million through a combination of debt and equity or dispose of capital being about $100 million of debt and $300 million of disposition or equity capital. Obviously with where our cost of equity is today the intent as we include in our capital plan is for that to be via dispositions of about $150 million per year. We have at the midpoint, well we have a range of $100 million to $190 million in total disposition capital for this year. The other thing I’ll point out as you recall in the last couple of calls we’ve been talking about our intent to better time that disposition, the disposition proceeds with the developments coming online to provide a better and more consistent earnings growth trajectory. So we are planning on those transactions occurring in the third quarter of each year when the EBITDA and NOI contribution from the development comes on and you have a more timing -- more of a timing match between capital raised and capital deployed.

[Nick Joseph:]

So just to follow-up on that, so guidance is assuming about $150 million and dispositions at the midpoint, but it could be up to $300 million of the combination of dispositions and equity. But right now guidance assumes that is debt. Is that right?

[Daniel Perry:]

No, no, it be $300 million over the next two years of debt or dispo and equity capital, which we would spread between the two years, so $150 million is what we expect in our guidance and actuality for this year.

[Operator:]

Thank you. And the next question comes from Austin Wurschmidt with KeyBanc.

[Austin Wurschmidt:]

Hey, guys. Thanks for taking the question. I'm just curious how much appetite does your capital partner have to continue to partner on joint ventures and the disposition side and do they get first look on any potential sales?

[Bill Bayless:]

Hey, Austin. So joint [ph] venture as an entree into a partnership with American Campus. They do have a greater appetite to grow that platform. However, we do not have any exclusivity with them or any first look, but would certainly look to them as our established partner when we look at other available capital resources to fund our growth.

[Austin Wurschmidt:]

Thanks. And then you mentioned in your prepared remarks that the cap rates had compressed further in the fourth quarter. And I'm just trying to understand can you give us a sense of how much that was and what we should be thinking about from expectation of the dispositions you've assumed in guidance, where our cap rates will shake out?

[Bill Bayless:]

Yeah. As we noted overall you saw cap rates compress really more, more specifically importantly when you look and think about our dispositions. We continually saw those core pedestrian cap rates trading in the low 4% in line with what you saw the ACC transactions of a 4.1 and 4.4. You saw other transactions that were in that similar low 4% cap rate range. And certainly as we look and look to capitalize or venture out some of our core pedestrian assets, our expectations are in line with that low 4% cap rate range.

[Austin Wurschmidt:]

Appreciate that. And then just separately, I was curious as far as the – how the leases breakdown, what percentage of our fall 2018-2019 leases have a 12-month term? And do you know off hand what revenue growth was for that subset of assets?

[Daniel Perry:]

Yeah, and when you look at it, and we have our residence hall properties, and Daniel proud of being replied give any miss numbers please, give me the correct one. We look at our 10 month residence hall properties. And I believe in the Q4 it represents about 18% of our NOI, and that correct answer – of our revenue. 18% of our revenue, and actually we had a great rental, great growth there, we are fit -- sorry, my mic was off, could you hear what I was saying Austin?

[Austin Wurschmidt:]

Yes. Yes.

[Daniel Perry:]

Okay. We were at 4.2% revenue growth on that 10 month property where the 12 month apartments were 3.5%, and so 18% from the academic year properties what we would call an academic year lease and the 72% coming from the – 82% rather coming from the 12 month apartments.

[Austin Wurschmidt:]

So 82% at 3.5% and 18% at 4.2%?

[Daniel Perry:]

Yeah..

[Austin Wurschmidt:]

Great. That’s helpful.

[Daniel Perry:]

And the one thing that we would say, we started talking about this about two years ago is that the majority of ACC transactions that we are now being awarded are residence hall products for first year students that are on that academic year lease and so we talked about – you'll continue to see just a little variation in seasonality especially in Q2 as those residence hall leases roll-off and the apartment leases continue. And so just something to be aware that that's a trend that will probably continue to see that potentially come in.

[Austin Wurschmidt:]

When you look back historically maybe just – one quick follow up when you look back historically have those 10 month leases outperformed the 12 month leases over the last several years when we've seen …

[Daniel Perry:]

You got to break in them into two cat – you've got to break them into two categories, and that the majority of those assets are on-campus residents halls, where you would see your rate profile be in the area of 2.5% to 3% coupon clipping revenue growth. We only have a couple of properties that are off-campus, private residence halls being the Galloway House in Austin and College Station. Those two assets that are two of our legacy flagship assets that have been some of our best performers have always pushed that rate up over the last five years. I would tell you that over the long-term and with the growing amount of that coming in the on-campus arena, you would expect that to be a more normalized consistent 2.5% to 3% revenue growth over the long-term.

[Operator:]

Thank you. And the next question comes from Samir Khanal with Evercore.

[Samir Khanal:]

Hi. Good morning, guys. Bill or Daniel, I guess what gives you the confidence that you'll be able to hit the midpoint or the lower end of the expense range that you've provided for 2019. If I go back historically right in 2018 you started off with 2.5% to 3.3%. You hit kind of at the higher end of that range. 2017 was kind of a similar situation. It was 1% to 1.5% and then you kind of I think my math serves me right, it was kind of at the high end of the range when you exclude the impacts from the hurricane. So just trying to get color around sort of expense growth here and how you're thinking about it?

[Daniel Perry:]

Yeah, Samir. This is Daniel. And when you look at 2018, we hit ultimately 3% expense growth versus a midpoint as you referenced of 2.9. So we were within 10 basis points of our original midpoint from the beginning of the year, which we consider to be a pretty good performance relative to the expectations. As you look at 2019 with a 2.7% operating expense growth midpoint for same-store, it’s a 30 basis point improvement over 2018 that is primarily driven by our expectations for a moderation in property tax growth. We came in really close to the property tax growth that we expected for 2018 albeit it was a high number we expected that going into the year, this year based on our consultation with our advisors, our tax advisors, we believe that a lot of the reassessments that we saw in 2018 have now pretty fully baked valuations and we do have a few markets where we expect big reassessments this year that's built into our 4% but we already have some of the new assessments in for 2019. For example in Philly where we had $1 million increase in taxes. We already know our assessment, we have a very small increase. So we’re pretty confident with that 4%. The other area that has caused some higher expense growth in the past is related to instant response costs, related to hurricanes, and other incidents like that happens we've really tried to build in and allow for that better this year in our Incident Response budget. And so that's in our 2.7% growth and so we feel pretty good about it. The other area that certainly is a focus for all industries is payroll. As I’ve said in my remarks we’re expecting 4% growth in payroll this year. If you remember I think we came in at 1.9% in 2018 that we feel like that gives us room to be able to perform well against any payroll increases. We also have pretty good management of our payroll, our Inside Track system provides a great bench of talent for any replacements that we need to do at the property level. I mean is that you can imagine those are new employees that may not be you know or certainly aren't more expensive than, than any existing employees you lose. So you know we feel pretty confident in those numbers as well.

[Samir Khanal:]

Just as a follow-up on the reassessments, I mean how does that exactly work? I mean as you sit here today, you have a pretty good idea of sort of reassessments for the next 12 months, I would think. But, I mean are there any – are there any surprises that, that could come up. I mean have there been instances in the…

[Daniel Perry:]

Sure.

[Samir Khanal:]

In the past where you know three months later or six months later those came up and that impacted sort of your numbers.

[Daniel Perry:]

You know yes, you do get surprises. Fortunately, it tends to average out you know because you get surprises to the positive. So you know when you relook at what our original expectation was for property taxes in 2018, it was 7.9%. We revised it to 9%. We came in at 8.3%. So pretty tight band there of ultimate growth. And so, you know we have multiple national advisers that we use for property taxes and they're able to give us pretty good direction that in combination with our in-house experts we are able to project those pretty close to what actually ends up turning out.

[Samir Khanal:]

Okay. And I guess just one last one for me. I guess what does your presale development pipeline look like right now. You've got the two off-campus projects to the Flex and the 959 Franklin. I mean what does the pipeline look beyond sort of 2019?

[Daniel Perry:]

You know for us that's something that we look at in concert with our overall capital allocation opportunities. It is we say you know our first priority is always on the own development where we're still getting 225 basis points of spread to you know current market cap rates. And so, we allocate that as our number one priority. We look at pre-sales, and there's always good opportunities out there, but we're very selective in analyzing them and in concert with the growth profile going forward and line them up against the capital allocation, we have our own development, and so that's something the pipeline is good, but we only choose to execute when it makes sense and it is not our highest priority with our development opportunities.

[Operator:]

Thank you. And the next question comes on Daniel Bernstein with Capital One.

[Daniel Bernstein:]

Okay. All right. I just want to ask about the capital recycling guidance for 2019. You did over $600 million in 2018, 2019 guidance is $150, is that just -- is that decrease just a matching to the development needs? Or is there some other strategic decrease in recycling? Can you -- especially in light of some of the cap rates that you've been quoting on 2018 sales and decreasing cap rates in 4Q out thought maybe the recycling number would be a little bit higher?

[Daniel Perry:]

Yeah, if you really look at 2018, we had two things going on in terms of the amount of recycling, we did. When we bought Core Spaces or entered into the Core Spaces transaction in 2017, you’ll remember that was a three year funding that we agreed to with that partner given their tax objectives. We were funding part of it in fall of 2017, part of it fall in – of 2018, and part of it in fall of 2019. And so that the joint venture that we did is in 2018 that produced proceeds about $367 billion was a funding mechanism for that Core Spaces transaction that we had planned when we entered into it in 2017 and talked about. We also did an additional $245 million of dispositions that we actually didn’t anticipate when we gave guidance at the beginning of the year, but the Disney project came together during the year and we wanted to get capital in place for that project on the front end, so we felt comfortable with committing to a five-year development there. That's taken care of now and so we're really looking at everything that we have in place and trying to now match time that better and so it puts us in a position to do a little less and do it from a timing perspective with the delivery of the developments each year.

[Daniel Bernstein:]

Okay. So if the development picks up for some reason maybe the acquisitions would too, but otherwise it’s kind of matched?

[Daniel Perry:]

Yeah. We feel, and we feel comfortable about where our balance sheet is at this point. If development picks up, you know we certainly will look at where cost of capital is, but the intent would be to match time at better that's something we've talked about with wanting to bring more stability to our earnings growth trajectory and move to more of a matched timing funding strategy.

[Daniel Bernstein:]

Okay. And then I said at NMHC and it seems like a lot of developers and investors are looking at alternative assets for sizable like family mentioned and Student House and so, have you sought out or any of the date, any investment partners potentially sought you out as a capital source besides selling out, just trying to see at -- to expand that.

[Bill Bayless:]

The answer to that for the last three years to five years has been, yes it continues to be yes. There is certainly plenty of money and opportunities to folks that would love the joint venture and partners. Williams said we're very pleased with our relation with Allianz. They do not have exclusivity or first look, but we are enjoying that relationship and have no reason at this point to necessarily look elsewhere unless someone had set a cost of capital that was so much more attractive, but certainly there is no shortage of opportunity for us in terms of those sources.

[Operator:]

Thank you. And the next question comes from Alexander Goldfarb with Sandler O'Neill.

[Alexander Goldfarb:]

Hey. So I appreciate the comments on the equity side for capital funding. In the guidance for 2019, is there anything that you're budgeting yet to address maybe taking an early stab at the 2020 maturities?

[Bill Bayless:]

Well, what we have from a debt standpoint is as we talked about we already closed on an expansion of our revolver to more match up with the size of our ongoing development pipeline. We also have – as you remember we paid off multiple term loans in 2018 with the proceeds from our disposition activity. We do intend to do a small term-loan in the second half of this year. From a long-term kind of fixed rate funding perspective, we are looking at doing another bond offering probably in early 2020 as I commented in my prepared remarks. And I also said that we had entered into a 10-year treasury swap for that – for half of that transaction to mitigate any interest rate risk in the interim.

[Alexander Goldfarb:]

And then just another on – on the development funding side, it looks like if you take out the core spaces which I think was a $130 million, the one that you took down the fourth quarter, the overall development pipeline shrunk by about $100 million, but the amount spent to date stayed the same. Is that literally just happens to be just how core spaces worked out or is there something going on – something else going on with the budgeting on the developments?

[Daniel Perry:]

Net-net it went down $100 million because you paid the $130 million. It was about $139 million I think on the core spaces still and then you had the $42 million deal Drexel Calhoun come out. So that's the net $100 million change. So, no real changes other than that from last quarter, obviously, we continue to have. If you look at it by line item funding that occurred but everything else should be pretty consistent with what we disclosed before.

[Alexander Goldfarb:]

Okay. And then just a final question, in looking at your development, the total commitment looks to be about 12% or so of your gross assets and you guys have been trying to do a much better job on the funding side to better match it up. Is there sort of a target amount that you're seeing that you're more comfortable with having annually deliver so that way, on the funding side there seems to be, maybe there's less discussion of what you need to source from dispositions or equity and it becomes something more sustainable through free cash flow and maybe a few asset sales versus something that gets a bigger conversation if you will?

[Daniel Perry:]

I mean, what we always look at something we’ve discussed with our board. We’ve talked historically about – we think that the 5% of assets per year, development pipeline is appropriate. When you’re talking about the ability to recycle capital in the low fours into six in a quarter and above development, that’s a really attractive tray. And so we don’t see any reason to change that capital allocation strategy at this point. Even if you were to see, cap rate start to tick back up a little bit. We still have so much cushion, right now you are looking at almost over 200 bps and spread between what we can develop that and what we can recycle capital at. So, that remains, that continued to be attractive to us and so our 5% of assets kind of development strategy we think continues to make sense as well.

[Operator:]

Thank you. [Operator Instructions] And the next question comes from John Pawlowski with Green Street Advisors.

[John Pawlowski:]

Thanks. William, a question for you on opportunity zones. I know it's very early and there's still a lot of uncertainty. There are a lot of low income U.S. census tracks in and around college campuses. Do you foresee any of your markets seeing a supply away from Opportunity Zone development?

[Bill Bayless:]

We really have looked at all the, how the Opportunity Zones overlay within our existing markets and specifically where they are. But if you go back to our initial investment criteria, one of the things we really focused on is barriers to the entry and that really existed prior to the Opportunity Zones. So, while we see people looking at the Opportunity Zones, we really haven't seen an increase in supply as evidenced by the overall supply numbers that we've dictated that's been driven by that Opportunity Zone today.

[John Pawlowski:]

Are you seeing a lot of pitch books floating around for plans to raise money in and around your footprint?

[Bill Bayless:]

Not really on the student housing side. No.

[John Pawlowski:]

Okay. And then Jennifer maybe a question for you on just the sensitivity to rental rate growth with the financial markets. I know you're more stable versus other real estate types but if you could provide some color on, for instance, if the stock market goes down by 20% ahead of next falls lease up, what could rental rate growth look like? Does it go flat or just any, any sense for what you’ve seen historically in your pricing systems in terms of sensitivity to ebbs and flows of the financial market will be helpful?

[Jennifer Beese:]

First question there, but I'm a little nervous I must say how are you today?

[Bill Bayless:]

Anybody at the table could. No look Jennifer answer it.

[Jennifer Beese:]

We do not see any fluctuation right now in our rental rates at this time.

[Bill Bayless:]

Yeah, if you look John long-term whenever we've seen the macro environment change certainly throughout the great recession would be the greatest evidence in it through 2009, 2010 and 2011 when you saw a major macro crisis we saw the most continued consistency in our rental rates and our cash flows. And so the macroeconomics just don't tend to play out and impact us. And then it comes down to the microeconomics of supply and demand, in each university market and we see a little variation hardly if ever the – only time that we have ever really seen it in the company's history and you really got to go back and it was before the modern supply of student housing is at the levels that it was today. Is that back in the early 2000s and 2001, 2002 and in Austin or at University of Colorado which has the Broomfield Northern Denver submarket. You would see multi-family softness somewhat impacting, this is back when students didn't have the purpose built product and walking distance to campus. But there was more of a shadow market in that multi-family, you'd start to see some impacts them. But we have not seen it in the last 15 years at all.

[Daniel Perry:]

And if I can pile on to Bill there. If you go back 2008, 2009 and 2010 I think that's a pretty perfect correlation to the scenario you're asking about John. Our same-store revenue growth in 2008 was 4.2%, in 2009 it was 4.9% and in – and this is – so this is opening for the fall lease up – of each of those years. And then in 2010 it was 4.4%.So, really really good revenue growth.

[Bill Bayless:]

If you don’t group for recessions, but when they happen, we tend to do really well. You know if you go back and dig it, some of that's a combination of occupancy, some of it was right, some of it was occupancy. The good thing was we had positive growth in both occupancy and rate throughout that time period, so that's the nice part of Student Housing.

[John Pawlowski:]

Sure. Mild push back there would be, you know 2007, 2008, 2009, the demographic wave was firmly at your guys back and now it’s a slowing environment.

[Daniel Perry:]

Yeah. The demographic rate may be slowing, but the enrollment at the institutions that we're serving is not and this is what you get to look at. When you look at the demographic of 2018 to 2022 year olds and the amount of students that are available to go to college, we're operating at the premier institutions across America where there is incredible competition for those seats. And so we do not see any impact, you know when you look at the things that have been concerns over the last several years, macroeconomics, international student population, every seat at these institutions gets filled and there is a significant back flow for. We always talk about our home state of Texas. The Top 6% of high school students get into A&M and UT, the backlog of students waiting for those seats and that's consistent across our Tier 1 public institutions across America. So, the supply side of the equation and the buying power of the student is truly not a historical risk nor one that we see presently.

[Operator:]

Thank you. And this concludes the question-and-answer session, and I would like to turn the call back over to management for any closing comments.

[Bill Bayless:]

Inclosing, we like to first thank the entire American Campus team for a very solid year in 2018 what they produced, especially with the successful Fall lease-up that sets the stage for accelerating growth into 2019. Also being our 25th anniversary, we would like to thank every team member, every university partner and all of our vendor partners who have been instrumental in our success over the last 25 years. We look forward to seeing many of you at the upcoming investor conferences and talking to you shortly in April about our Q1 results. Thanks so much.

[Operator:]

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.