American Campus Communities, Inc.
Q2 2016 Earnings Call Transcript

Published: 26 Jul 2016

[Operator:]

Good morning and welcome to the American Campus Communities' Second Quarter 2016 Earnings Conference Call. All participants will be in a listen only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Ryan Dennison, VP of Corporate Finance and Investor Relations. Please go ahead sir.

[Ryan Dennison:]

Thank you. Good morning and thank you for joining the American Campus Communities’ 2016 second quarter conference call. 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. If you do not have a copy of the release, it’s available on the company’s website at americancampus.com in the Investor Relations section under Press Releases. Also posted on the company website in the Investor Relations section you will find a supplemental financial package. We are also 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 fact may be deemed forward-looking statements within the meanings of 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 would now like to introduce the members of senior management joining us for the call

[Bill Bayless:]

Thank you, Ryan. Good morning and thank all of you for joining us as we discuss our second quarter 2016 financial and operating results. As you read in last night’s release, and we hear from the team today, it was another productive quarter, highlighted by the continued expansion of our high yielding development pipeline including two new developments that will open in fall of 2017 bringing fall 2017 deliveries to $600 million. Meaningful progress in the process to dispose of the remaining non-core assets in our portfolio, continuing positive impacts with regard to our strategic asset management initiatives especially in the area of utilities and good progress with regard to our lease up for the 2016-2017 academic year with our core portfolio excluding the properties targeted for disposition running 80 basis points ahead with the prior year. All of these items set the stage for solid internal growth and margin improvement heading into calendar year 2017. Also during the quarter, our On-Campus ACE projects were recognized by both the Urban Land Institute and the National Council for Public-Private Partnerships further reinforcing American Campus’ best in class reputation in that business segment. With that I’ll turn it over to Jim Hopke to discuss our operational results for the quarter and to provide an update for our 2016-2017 lease up.

[James Hopke:]

Thanks Bill. We continue to make good progress on our 2016 operating and leasing activities and our teams remained focused on completing our lease up and delivering on our operational and asset management initiatives. On Page 5 of our supplemental package, you can see the second quarter same store NOI increased by 2.5% over Q2 of 2015 on a 2.5% increase in revenue and 2.4% increase in operating expenses. Quarterly and year-to-date operating expense detail is highlighted on Page 6. Utilities expenses continue to benefit from improved commodities pricing and our asset management initiative in this area including LED lighting upgrades, rate negotiations in deregulated energy markets and improved pricing negotiated for cable and internet contracts that are resulting in notable efficiencies. Repairs and maintenance expenses were down 3.6% compared to second quarter of 2015 bringing the year-to-date increase to 4.1%. As noted on the last call, we expect R&M expenses to trend to inflationary growth for the year. Marketing expand increased by 10.2% in the quarter. Expense growth in this category should be more in line with inflation in the third and fourth quarters and we project our annual spend to be in the area of $140 per bed for the full year. Our year-to-date property tax expense increases are the result of higher than anticipated assessments in some early valuation jurisdictions. There are several stages that have yet to finalize their appraisals and assessments so this category will reflect some volatility as we negotiate final assessments between now and year end. All in all, we are still expecting same store operating expense growth within the guidance range of 1.8% to 2.3% for the full year and we are continuing to make progress on a longer term goal of increasing operating margins to 55% plus. You can see on the seasonality page that our average second quarter same store physical occupancy was 92.6% compared to 93.0% for the same period in 2015. As a reminder, second quarter occupancy is always seasonally low due to nine months leases at our residence hall properties. Our 2016-2017 leasing status in updated on Page 8. As of Friday, July 22nd, our 2017 same store wholly owned portfolio was 98.7% applied for and 93.1% leased compared to 99.2% applied and 93.2% leased for the same in 2015. We are still projecting an overall rental rate increase of 3% for the 2017 same store portfolio. Excluding properties targeted for dispassion, our core portfolio is 94.3% leased, 80 basis point above prior year. We are pleased with our same store leasing velocity and now well positioned to achieve our guidance occupancy range of 96.75% to 98.75%. Our 2016 development deliveries are 92.1% preleased for the upcoming academic year excluding our Merwick Stanworth Phase II asset at Princeton which targets faculty and staff and is expected to stabilize over the first academic year. In closing, I would like take a second to thank our operations, facilities and leasing team in advance for the hard work they will put in during the next several weeks to completed our lease up, turn our beds and welcome our 2016-2017 academic year residence to the American Campus Community where they will love living. With that I will turn the call over to William to discuss our investments activity.

[William Talbot:]

Thanks Jim. Turning first to development, we remain on track for delivery in 2016 of our seven development and presale assets totaling $309 million. With regard to our 2017 deliveries, we added two new core Class A development located within walking distance to Clemson University and the University of Oklahoma which were part of the broader University House Communities portfolio transaction. ACC fully assume the in progress developments from UHC at closing and it’s responsible for the completion of the project. Both developments are target in 6.5% stabilize yield. With the addition of the two new projects, we’ve increased our highly accretive own developments for fall 2017 to $603 million of core pedestrian communities. All of our 2017 developments are currently under construction and we do not anticipate any additional own developments for 2017. In addition, we continue to cultivate our pipeline for 2018 and beyond and we’ll update the market as we make further progress. In total, our pipeline of own developments for 2016 through 2019 currently totals 23 projects, 16,300 beds and approximately $1.4 billion of development cost consisting entirely of core Class A communities that are either located on or then walking distance to campus. As previously discussed, we are targeting between 6.5% and 7% stabilized normal yield for these developments with the exception of our ACE development on the campus of the University of California at Berkeley which is targeting a 6.25% stabilize yield representing an attractive spread over market cap rates in the Bay Area. Turning now to the transaction market, we continue to see significant interest in student housing as an investment sector. According to recent report from both HFS and CBRE, after a record level of transaction volume in 2015 totaling over 5.6 billion, we’ve already seen over $5.3 billion in closed transaction for the first half of 2016. Investment in the sector continues to be driven by new and continued interest from foreign and domestic instructional investors and fund evidenced by recent investments in the sector CPPIB, GIC [indiscernible] and INVESCO. Based on the increased demand and long term stability of student housing, cap rates in the sector continue to compress to record levels of our average traded cap rate on student housing at 5.6% in the second quarter even with overall multifamily. CBRE also noted that cap rates for corporate student product are currently trading in the 5% to sub-5% cap rate range. With regards to our proceed our acquisitions in the current environment, we continue to review select core positioning opportunities that meet our investment criteria and offer potential upside with regard to improved revenue and operations, management upside and/or efficiencies through existing market expansion. To the extent it makes sense to execute on acquisition opportunities relative to our cost of capital, we will update the market. Moving to dispositions, we have made progress on the sale process related to our non-core assets that are currently being marketed and have received significant interest from large institutional foreign and domestic fund. We are in the best and final stages of buyer selection and are targeting a close in Q4. The sale may or may not include the continued management of the assets by American Campus. We intend to recycle the proceeds from the sale of non-core assets into our high yielding core development pipeline. Finally, we continue to see increased interest from colleges and universities to utilize P3s to address their housing needs. Currently, we are pursuing over 20 procurements in direct negotiations across the country including both equity and third party transaction structures. During the quarter, we closed on two previously announced third party fee development on the campuses of Texas A&M, San Antonio and Texas A&M, Corpus Christi. Both projects are expected to deliver for fall 2017. In addition with regards to our consulting agreement related to a second transaction at Texas A&M, Corpus Christi, we not anticipate the closing of the transaction to occur in the third or fourth quarter of 2016. Upon completion of the transaction, ACC will receive a one time, $1.4 million consulting fee and we expect to be hired as manager of the project. With that I will not turn it over to Jon to discuss our financial results.

[Jonathan Graf:]

Thanks William. For the second quarter of 2016, we’ve reported total FFOM of 72.2 million or $0.54 for fully diluted share as compared to FFOM of 65.3 million or $0.57 for fully diluted share for the comparable quarter in 2016. FFOM increased by $7 million or 10.8% but per share amounts were impacted by 15.8% increase in the weighted shares outstanding, primarily from the 17.9 million common share offering during February of 2016 to fund our development pipeline. As compared to the second quarter of 2015, the 2016 second quarter results benefited from the previously discussed same store operating results and the 11 growth properties placed into service since the first quarter of 2015. This was partially offset by lost FFOM from the sale of disposition properties during 2016 and 2015, whose FFOM contribution was $3 million less this quarter as compared to 2015. As of June 30th, 2016, the company’s debt to total asset value was 35.5% and the net debt to run rate EBITDA was 6 times which is typically elevated this quarter as fall 2016 development deliveries are not yet generating EBITDA. On the sale of the full non-core property of disposition that William discussed, these future ratios are anticipated to be approximately 33% and 5.3 times. As of the end of the second quarter, we had 207 million of cash available and 500 million available under our revolving credit facility. These funds along with those anticipated from future property dispositions, position us to execute on our development pipeline while maintaining strong credit ratios and healthy balance sheet. As of quarter end, we had approximately 5.3 billion in unencumbered value which was 73% of the company’s total asset value. Remaining fixed rate debt maturities for 2016 are 120 million or 4.7% of the company’s total indebtedness. And as of quarter end, we had no outstanding floating rate debt. We are pleased with our operational performance to date which has been within our expectations. We are updating our 2016 FFOM guidance range to $2.19 to $2.31 for fully diluted share primarily for two items which are to reflect the timing of remaining dispositions to occur later in 2016 and to increase anticipated third party fees at the low end of guidance as a result of the commencement of the Texas A&M, Corpus Christi and San Antonio during this quarter. We intend to update and narrow this range during our third quarter earnings call to reflect the completion of our 2016-1027 lease up in current disposition progress. The most significant factors that will impact where will be within this FFOM guidance range for the year are as follows. Our current property NOI range of 395.2 million to 410.9 million includes the impact on NOI from property dispositions. The NOI ultimately produced for the year with be contingent upon final occupancy and rental rates obtained for the 2016-2017 lease up, managing no shows, maintaining operating expenses including turn cost at anticipated levels, final property tax assessments primarily in Florida and certain Texas markets in the timing and amount of property dispositions. With regard to dispositions, the low ends of the NOI range assumes 600 million the high end assumes 200 million and today, we have completed 73.8 million. The timing of closing the remaining dispositions at the low end of the guidance range was updated from the second quarter of 2016 to early fourth quarter of 2016, while remaining dispositions at the high end of the guidance range was updated to occur later in the fourth quarter. For interest expense, excluding the on campus participating properties, the updated range is 74.4 million to 76.2 million net of capitalized interest. The updated range and final amount of interest expense is primarily drive by the elimination of property mortgage loans associated with related dispositions within the guidance range. Concerning third party services revenue, achievement of the fee range is primarily dependent on obtaining additional third party management contracts in the finalization of documents and completion of services provided under our consultant agreement for the Texas A&M, Corpus Christi project as outlined on Page 11 of the supplemental. With that I will turn back to Bill.

[Bill Bayless:]

Thanks Jon. And again thank you all for joining us to discuss our Q2 results. In closing, the whole music we played at the beginning at this call is an appropriate reminder for all of us in the student housing industry as this is the time of year when we truly do after remained focused on taking care of the business in hand. On that note, I’d like to echo Jim’s earlier sentiments and thank the ACC team advance for all the efforts they are not putting forth related to the annual turn process, the completion of the 2016-2017 lease up, the administration of our no-show process and all the preparations being made to warmly welcome students and their parents on move-in day. With that we’ll open it up for Q&A.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from David Corak of FBR. Please go ahead.

[David Corak:]

Hey guys. Can you give some color on what you are seeing in the transaction market in terms of deal flow for pedestrian assets, you know for your comments on becoming potentially more inquisitive you know we talk about the buyer pull out there, but I am just curious on the level of deals hitting the market?

[Bill Bayless:]

Yeah. This is Bill, David. As William talked about in his script is the updates that came earlier in the quarter from the major brokers in the space, there is already been 5.3 billion trade in the first six months of this year versus last year the entire year as a record 5.5 billion, so certainly an increase level of activity. Also we saw the average cap rates for student housing on par with multifamily, a 5.6% cap rate which is down from 5.9% from the year before in terms of overall average. And I would say part of that decrease of 30 bps is in driven by the fact that there is more and more core assets hitting the market as we see that the core assets development being more and more the focus on the merchant development. And so not only is there more product being brought to market but it’s better quality product than even before.

[David Corak:]

Okay, great. And you are trading probably at a sub-5% cap rate at this point, what kind of pricing mix sense for you at this point, you know where there have to be some of that upside in there?

[Bill Bayless:]

Well certainly you know we look at our capital from a perspective of all the opportunities before us. And so as we talk about for the last several quarters, certainly there is no shortage of highly accretive development opportunities. However as William mentioned, we do look selectively at the acquisitions that are available out there and we look at the underwrite bills that have upside of us in terms of significant growth from under management or margin improvement from existing operations in the given market but certainly we look at our capital is being finite and look at all the opportunities before market to make those decisions. And so it’s an asset by asset decision and valuation.

[David Corak:]

Okay, great. And then looking at the 17 supply numbers that actually you put out there week or so ago, you know it looks they are calling for supply in your markets to be up only like 2% or 3% but about third of those beds are still in the planning stage. I know it’s early but what are you guys seeing on the ground in your markets and how do you see that shaking out?

[Bill Bayless:]

Yes, supply continues to be a real positive story for the space and want to especially relevant to American Campus. And at the ACE debt if you look nationally, beds under construction when you look at if there is no more start which there will certainly be some, new supply would be down 40% from last year. If everything that could start for 2017 development did indeed end up under construction and delivered, national supply would be down 7%, so somewhere between down 7 and down 40 on a national scale. When you then look at American Campus’ markets and drill down and look at our data, the projects that are currently under construction if that were all were to be built, we would down in supply 20%. If everything that is planned actually break around and well brought to provision that would be an increase of 7% based on our numbers. Now it’s important to dissect that into the increase of 7% is really based on American Campus’ success and development. And then when you carve out our markets and you look at take American Campus out of the equation and look only at our competitors if everything that could be built out would be build out, supply would be down 3%. When you look at our competitors that are under construction, supply would be down 31%. The real story here and this ties into your previous question, we talked about merchant developers are focused more on the core development close to campus and those are tough markets to enter because of the natural barriers entering the tough entitlement projects. When you look at the increase in our markets that one of the most exciting no statistics underneath the surface, American Campus in 2017 will represent 13.7% of all development deliveries in our markets that’s up from 5.1% in 2016. And so you are seeing our development expertise entitlement projects come into played where even though there is a decrease among all of our competitors, we are substantially accelerating that business because of our success there. So supply is down nationally and it’s up for us, it’s the best of all worlds.

[David Corak:]

Great, that’s all from me. Thanks.

[Operator:]

And our next question comes with Jordan Sadler of KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt:]

Hey, good morning. It’s Austin Wurschmidt here with Jordan. I was just curious if you guys could provide some additional detail on sort of the delay in the non-core disposition plans as to what’s driving that and just what your confidence is and continuing to execute on a portfolio sale or does it appear like one-offs are more likely at this point?

[Bill Bayless:]

Yeah, no, we’re very, very pleased with the process. And as we first - when we first announced this disposition plan February, at that time, we talked about during a fully marketed yield traditionally or looking at engaging an intermediary and going out meeting and talking with the groups that are coming in and having to be a little more interment involved process and look at all the opportunities that were out there. And so the - there certainly has been no lack of interest, actually myself the rest of the executive team has been out on the road in this process, we’ve met personally with eight different groups, large institutional investors both foreign and domestic that are either just recently in the same or looking to get in the space. We actually had our best and final last verity, have a few straggling in the beginning of this week and we are pleased that actually four of those eight came in with full portfolio offers and then we also plectra of traditional folks that are interested in certain components of the portfolio. And so we’re very pleased with the process. And gain not just the quality offers but also affect that we really get to get out there and meet all these folks that are looking to come into the space and to form and begin to have those dialog for further relationships and future opportunities beyond this one. And as we talk about updating in our guidance that process that we’ve gone through and where we are right now in evaluation those best and finals, we believe it should be early in Q4 certainly within Q4 that we be able bring everything to consummation and the - certainly we’ll look at all the offers and how they breakout both as a whole and to the individual offers and so what makes the overall best sense that we’ve please on all fronts.

[Austin Wurschmidt:]

No, that’s great detail. Is it fair to say that the pricing you’ve assumed in guidance that you are still comfortable with that sort of low six cap rate assumed in guidance?

[Bill Bayless:]

Yes, we are.

[Austin Wurschmidt:]

Okay. And then separately, I guess just thinking about the backlog of ACE deals you mentioned 20 procurements that you guys are looking at, just curious you know what the timing is on some of those and do you think that it’s potential that we could see another spike at some point similar to what you had last year with the significant announcement and was around 15 announcements last year?

[Bill Bayless:]

Yeah, the 20 procurements are for all on campus P3, so that’s not all ACE transactions, are on campus equity but rather that’s for institutions that we’re looking at all forms of P3 that also would include third party. And as you folks have seen over the last three to fivers years, as we’ve talked about in intimately, universities operate at their own phase, last year was a great situation where you had a lot of schools making decisions in the short period of time, certainly those things can happen again, but more normal ordinary decision making, those 20 procurements process as we would expect to all play out and for all of those universities to make decisions over the next 12 to 18 months based on how long those process has taken place. And during that time, other procurements will begin. And so it really is not something that we can say unequivocally how many make a decision each and every quarter but rather this is you know I’ve always talked about procurement process on campus kind of mirrors and emulates what the entitlement process is off campus. And so certainly we’re very pleased with 2015. We’re very pleased with our current efforts related to both 20 as it relates to where short list having taken place and America Campuses advancement those processes. And so we feel good about the opportunity and the one thing that we would say that is being consist for the last two years is we continue to see an increasing level of interest from major public universities in using P3s and preserving their own credit capacities relates to delivering housing.

[Austin Wurschmidt:]

Thanks for that. And just last one from me, is I am wondering if you could give us a breakdown on the rental rate growth between the core assets in the non-core pro?

[Bill Bayless:]

The only thing that we mentioned on the last call and we would say again is when you talk about our 3% projected rental rate increase, obviously the disposition properties do have less or somewhat diminished growth metrics over some of the core. And so we feel highly confident in our ability to meet their 3% rental rate growth with the core on a go forward basis properties moving into 2017.

[Austin Wurschmidt:]

Thanks for taking the questions.

[Bill Bayless:]

And I go ahead and comment on that and that’s where we did point in the release that currently that core portfolio is running about 80 bps ahead on its lease up coupled with that 3% revenue projection. So we’re looking at solid projected rental revenue growth going into the next year.

[Operator:]

And our next question comes from Nick Joseph of Citigroup. Please go ahead.

[Nick Joseph:]

Thanks. Just going to back development, for 2017 the deliveries are now 600 million which is well above the past year’s, how do you think about that level of development in terms of the size, risk mitigation and scalability of the existing platform?

[Bill Bayless:]

Yeah, Nick, this is somewhere that we have great comfort. I always remind folks that you know American Campus’ development capabilities go back well before we were public company and that the week that we rank the bell on the Wall Street in 2004 as a small $250 million enterprise that very weak including our third party clients we were delivering nine properties with a greater enterprise value than the company at that time. When you look 2012 which was our largest development year, we delivered 16 properties simultaneously all that time on budget fully stabilized. And since 2012, we have only increased our scalability and then we have changed our project management staffing model to include on side America Campus personal on each and every construction site where we used to do that only remotely in the 2012 cycle and so we’ve made even greater enhancements. And so when you look at the actual number of deliveries that are taking place, it’s actually less than our historical highs. Also you see a higher percentage of on campus developments as a percent of the overall portfolio. And so when you are developing on campus, your inspections and jurisdiction from a typical democracy perspective is the university themselves versus municipalities they have a best in interest. And so we are completely comfortable with the level of development that we currently have before us and actual think we have some additional capacity beyond what you current see in the pipeline.

[Nick Joseph:]

Thanks. I guess just in terms of operations and maybe the missteps that we saw when you immigrated the portfolios a few years ago, those are acquisitions, just given that it is a larger number of properties that you are on-boarding and we will be preleasing in the past few years, are you going to make sure that the lease up of those new properties will not impact the lease up of the remaining portfolio?

[Bill Bayless:]

Yeah. Look 2017 is only three additional properties over what we’re delivering this fall and again the unique aspects to integration of the 2012 acquisitions that were based up of migrating from seven different operating platforms on to our own. When we’re doing a new development, everything is you know from the ground up on an American Campus system. So the level of integration of a new development is less than any even a single acquisition in that regard. So we’re completely fully comfortable with that.

[Nick Joseph:]

Thanks.

[Operator:]

And our next question comes from Ryan Burke of Green Street Advisors. Please go ahead.

[Ryan Burke:]

Thanks. Bill, just continuing with the list of ACE projects, I think we can look at that list and if you look at a place like Berkeley, it makes enough sense as to why you would want to develop and own there, but at least on paper if we look at say Prairie View A&M, it’s much less obvious, what types of things do you look for in the smaller lower ranking schools, they get you comfortable and excited about developing there?

[Bill Bayless:]

And Prairie View is normally as it relates to our ACE investment. If we go back and we first announced the first ACE transaction at Prairie View, it was on our seventh phase of development in Prairie View. And the Prairie View is a legacy client and one that we hold very near and dear and that the company’s first development even and candidly our entire launched a company is based on the business we done historically with Prairie View A&M University. And so Prairie View is not a university that we would seek out ACE’s investment and candidly that ACE investment was done to facilitate ultimately rolling the ACE this mine is very small projects there from an ACE perspective rolling them into the bigger on campus participating product portfolio that we have there of about 3,700 bps. And so without that historical context and the border on campus participating properties we have at Prairie View candidly that institution would not make our ACE investment criteria. And so as you look beyond that one Prairie View transaction you appropriately showed out, so I don’t think the fit in terms of the investment criteria the company has put forth relate to the rest of base that really holds true. And probably what we’re most excited about Ryan is when again you look at the institutions that are putting forth these procurements, it is your main Tier 1 flagship institutions in the names just continue to become more and more prominent. And so we look at our ACE investments really no differently especially when we’re talking about four year public universities, we look at them no differently than we do off campus investments in terms of where we want to invest our dollars. The one place where we’ll go to a different degree of scrutiny is with prominent private institutions that have meaningful on campus house and requirements of two to three years like you saw Butler which is the probably the very the smallest institution that we would do that have the value proposition there that we became comfortable with. But we’re seeing more and more opportunity that we can be even more selective is to where we invest those ACE dollars based on who wants to do those transactions.

[Ryan Burke:]

Got it, thanks. And separately on Clemson University, Oklahoma, you gave us total development costs but can you talk to us about how to underwrite those properties and what you actually paid for them?

[Bill Bayless:]

Yeah, and we underwrote them at a 6.5 going in yield and so we were very pleased that you know that yield after all the entitlement risk has been taken and predevelopment risk been taken. And the ground construction being underway, you elevate a lot of risk. And so we think that’s an appropriate development yield at that lower end of our 6.5 to 7 that we talk about and those are two just dynamite projects. We actually had attempted on to obtain that Clemson side ourselves in a highly competitive process and just missed on us, we were excited to see that when come back in the sited Oklahoma is a legacy site, you just can’t get closer to campus and so we’re really excited about both of those that going in yield, stabilize yield.

[Ryan Burke:]

Okay, what did you actually pay for the site so?

[Bill Bayless:]

The total investment will be $130 million.

[William Talbot:]

Correct. And so we took over their site. This is William. We took over their land cost for the properties and then we paid small transaction fee which basically was our pro rep lot of share of their broader transaction cost for the university house acquisition. So we just shared a net portion of the transaction cost.

[Ryan Burke:]

Okay, make sense. Thank you.

[Operator:]

And our next question comes from the Juan Sanabria of Bank of America. Please go ahead.

[Juan Sanabria:]

Hi, good morning. It’s Juan Sanabria with Jeff Spector here. Just wanted to ask questions on the non-core asset dispositions targeted for yearend, do you think that you are going to be able to get based on what you’ve seen so far in the bidding process and portfolio premium in any sense of kind of how should we be thinking about that?

[Bill Bayless:]

I think it’s going to be good market price and as William has talked about cap rates in the drive property category range from 6 to 6.25 and so we are comfortable that we’ll certainly be in the proper room. How much of that equates to a portfolio premium versus all the other factors and involved in the underwriters yet to be seen but certainly you know there are certain - as we look at the individual underwriting is taking place, there are certainly assets that we believe people are writing sound of that six and its underwriting north of it based on individual market characteristics. So as a whole, we’re very pleased with where the pricing is coming in.

[Juan Sanabria:]

And is the attempt to do a bigger portfolio deal in order to get a premium or just to get the risk off the table and get it all done in one self-groups, is it more about pricing or execution?

[Bill Bayless:]

Well, it’s a balance of both. Obviously when we announced this transaction, it is a highly strategic or exiting that non-core portfolio and transforming the final stages of transforming the portfolio in that regard. And as it relates to whether it’s done as a larger portfolio transaction are broken up in the several smaller pieces is certainly pricing comes in the play and that we want to try to maximize both of those objective simultaneously.

[Juan Sanabria:]

Great and just then just on your Clemson University of Oklahoma acquisitions, is there anything you guys want - are wanting to change is part of the development since it’s in process, anything that you would have changes if you would done it from the start and how did you sort of think about the risks associated with something you had and started from day one?

[Bill Bayless:]

Yeah, the university house development team is just an excellent group of folks. And so Travis Roberts and David Peers and their development team are folks that we hold in higher regard and familiar with their assets. We also had an added benefit in this in the day it happened to use the same interior design from the all of the American Campus work that also helped with some of their programmatic aspect from an amenities spacing. And we were able to get in and tweak the things that we want to from material specification and put them more in line of an American Campus standard specification. So we’re happy with what we’re able to impact as it relates to those components.

[Juan Sanabria:]

Great, are there any other development opportunities you can poach from sign given their non-development focus?

[Bill Bayless:]

No. And those were the only two true ground up developments that were part of that portfolio. They appropriately and strategically maintained the ones that are opening this fall and undertaking those. And in 2017 is what you’ve said now closed out. I mean in the last couple of calls, you heard us alluding to the fact that we felt there were still opportunity to add the ‘17 obviously was - we got the potential of these two transactions that we were working, but now we’re focused on ‘18 and beyond.

[Juan Sanabria:]

Great, thank you.

[Operator:]

And our next question comes from Ryan Meliker of Canaccord Genuity. Please go ahead.

[Ryan Meliker:]

Hey, good morning, guys. Most of my questions have been answered but one thing I was just hoping you guys could give us a little bit of added color on is your public private partnership in on campus exposure that you have today. If I recall correctly you guys are somewhere around 20% today, but that’s going to jump up with the 2016 openings and then even higher potentially with 2017, where do you guys see yourselves being today versus where it’s going to be a year from now?

[Bill Bayless:]

Yeah, I think over the long term we’ve talked number probably being between 20% and 25%, and we anticipate continuing to be a growth company. The other thing when you tie together some of the things we talked about on this call, certainly well our focus has been on development given the opportunities before some sort term. On a long term basis, we always expect American Campus to be positioned as the industry consolidator and the leader from an M&A perspective and so we’ll see that particular business segment continue to be a vital part of a growth organization. The other thing that we talked about is the significant increase in market share that you’ve seen us take over in the off campus development immediately adjacent to campus. And so with all of these variables working together make no mistake, we expect the on campus equity program to increase in quantitative dollars but not from a prorate amount of the opportunities before as a whole. And so I would historically we would look you know it’s going to be 20% through 2017 of all the - of when you cap factoring all development moving forward and probably would be bit probably difficult given the other growth opportunities before to see get much above 25%.

[Ryan Meliker:]

Okay, that’s helpful Bill. And then just a couple other quick ones here. Carbondale Development if I recall that’s been you know a pending development for at least a couple of quarters now still a TVD in terms of target and completion anything going on there that’s preventing it moving forward?

[Bill Bayless:]

Yeah that’s one we’ve been sitting on very patiently and that’s you are kind to say it’s been on there for a couple of quarters, has been on there for a couple of years. And that is one that we have fully teed up for development entitlement but as you all may follow the State of Illinois from a higher education perspective has significant challenges before it. We have candidly validated quite often in terms of whether or not we should sell that parcel off individually for some of the more aggressive folks that are out there versus we’ve been holding if there is wait and see what happens that the - at that particular university which the side is phenomenal, it is absolutely across the street from the university’s most popular on campus housing option but not one that we’ve been comfortable with just yet pulling the trigger. And so that’s one that you are very well may see us break ground on once there is better color of what’s going on in the State of Illinois from a funding and higher education perspective or one you could see part of the further dispel.

[Ryan Meliker:]

Okay, that’s helpful. And then last thing here, Stadium Center cost went up modestly about $1.5 million, was that a change of scope or was that something that you uncovered after acquisition of development process?

[William Talbot:]

Hey Ryan, this is William. No, that’s really just accounting, our original price we have the 26.5 that was what our presale price was from the developer. However we always accounted for additional upgrades, marketing cost, transaction. So when we talked about we are targeting 6.5 on that presale, it was always on the 27.9 since we’ve now acquired it, we now reflecting that full basis on it. But no change in our expectation yields or cost.

[Ryan Meliker:]

Okay, that’s helpful. That’s if from me. Thanks guys.

[Operator:]

[Operator Instructions] Our next question comes from Drew Babin of Robert W. Baird. Please go ahead.

[Drew Babin:]

Good morning.

[Bill Bayless:]

Good morning, Drew.

[Drew Babin:]

On your properties are previously under leased and now tracking quite a bit ahead for next year’s academic year, I was hoping you could talk about kind of overall what’s causing those properties had such a surge of preleasing but also specifically the roll of the University of Oregon asset that was a little slow our the gates, sort of how that’s positioned for the next calendar year for the next academic year?

[Bill Bayless:]

Yeah, in those categories of properties when we look at the 98% and above, 95% to 98% and then the 95% and below, if you go back throughout the years and look at those charts, you’ll see the exact same trending. In the properties that are below 95% where you see significant outpacing and leasing that’s where you are very modest in your rental rate growth typically flat to slightly negative and you are attempting to build revenue through occupancy. In the 98% and greater category at the other end, that’s where you have the most prolific velocity and you lease up the prior year, so you are attempting to push rate as much as possible and actually slowing velocity to an extent. And so those are completely normal and ordinary with regard to what you expect to see in an effort to maximize revenue in each of those categories. And the Portland property as we had talked about last year and again we truly were and that was as people may recall there had been an opening miss by a competitor the year before we opened. And even though we were fine our construction the market was so jaded and now poorly that prior developer had handled their miss that the students just didn’t end up having a comfort level when leasing it out the box. It was a home run this year. It was 99% leased very quickly after the first semester is projected to be completely full this fall and we would expect to have very strong revenue rental rate growth going forward. And so it’s been a really good stabilized property for us as we expected.

[Drew Babin:]

That’s helpful. And secondly, we’ve heard a little bit about potential on campus acquisition opportunities out there whether it be individual assets or potential interest in university’s entire housing stocks, I was hoping if you could talk a little bit about pros and cons of that type of acquisition whether that you are being working on?

[Bill Bayless:]

And that opportunity is nothing new. We’ve been talking to colleges and universities for the last 15 years on purchasing existing assets and the process that you go through when you are undertaking those from a pro and con perspective you know the best example would be Manzanita that Arizona State University and that there is a situation where our university had in exiting housing facility that they very much wanted to maintain and service and attempt capitalize and it became part of a redevelopment process. And so we win colleges and universities are looking to monetize the process that we always go through with them and we’ve done this with many universities over the years, in a lot of cases it leads to actually demolition and new development, when you look at the age or the like safety issues, the existing floor plant structures that you are working with. And so they are harder to make work than you might expect. However certainly you know schools are always looking to monetize and capitalize and we have those discussions with them frequently. And when you do you have to underwrite it just like you would any other investment and any other opportunity in terms of what’s the age of the assets, what’s the requirements to bring it up to what would be the expected life of the property to be used in a long term ground lease and evaluate the economics. And so you look at no different than any other prudent acquisition, it’s something schools have been talking about for decade, it’s nothing new and something that will continue to potentially present opportunities in the future, but there hasn’t been all the sudden revolutionary dynamic shift in this interest, it’s always been there by institutions and I can’t tell you how many times we have sat down at the table look at these thing with it.

[Drew Babin:]

Thanks you, that’s all from me.

[Operator:]

And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

[Bill Bayless:]

Again we want to thank you for joining us. And we want to close again by reaching out to the American Campus staff and that this is the time of the year where it all comes together for us and then working the turn and finalizing the lease up and managing the no-show, the AC team is the best in the business. We want to thank you again for your efforts and getting ready to welcome next year’s students and their parents. Thanks so much.

[Operator:]

And ladies and gentlemen, the conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.