American Campus Communities, Inc.
Q1 2015 Earnings Call Transcript

Published: 28 Apr 2015

[Operator:]

Good day, and welcome to the American Campus First Quarter 2015 Earnings Conference Call. 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 Ryan Dennison. Please go ahead.

[Ryan Dennison:]

Thank you, Alison. Good morning and thank you for joining the American Campus Communities 2015 First Quarter 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. 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 facts, may be deemed forward-looking statements within the meaning 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 statements 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 all of you for joining us for our Q1 2015 earnings call. As you could see from the press release last night, we continue to benefit from headwinds in our sector, it was a very solid quarter operationally and also we’re very excited about the high quality growth opportunities that you see materializing in front of us. With that, we’ll go ahead and jump right in and I’ll turn it over to Mr. Hopke.

[Jim Hopke:]

Thanks, Bill. We’re pleased to announce that our 2015 operating results slightly exceeded our internal expectations. Quarterly FFOM has increased by 7.2% and our leasing velocity continues to pace ahead of our longer term historical trends. On page five of the supplemental package, you will see that the first quarter same store NOI increased by 3.7% over Q1 of 2014, the result of a 3% increase in revenue and a 2% increase in operating expenses. The quarterly operating expense detail on page six reveals continued and significant savings in marketing expenses due to the strategic refinement of our property marketing activities. The increase in payroll expenses is in line with our expectations and annual guidance. The 4.7% increase in property taxes includes increases for our 2013 acquisitions and developments experiencing their first full assessments. The increase in property tax expense was 3.6%, excluding those properties. The increase in G&A expense was expected and primarily associated with costs incurred in the development of our next-gen systems to enhance scalability and provide long-term operating efficiency advantages. As you can see on page eight of the supplemental, March 31, 2015 occupancy at our same-store wholly-owned properties was 97.6% compared to 96.8% for the same date in the prior year. As of March 31st, occupancy for the total wholly-owned portfolio was 97.7% compared to 96.8% at March 31, 2014. On Page nine, we have updated the leasing status for the 2015/2016 academic year. As of Friday, April 24, our Q4 same-store wholly-owned portfolio was 85.5% applied for and 76.9% leased compared to 84.5% applied for and 76.8% leased for the same date prior year. This pace is slightly ahead of the 2014/2015 lease-up and compares even more favourably to our long-term historical leasing trend, running 380 basis points ahead of the past six-year leasing cycle average of 73.1% leased as of this date. We are still projecting an overall rental rate increase of 2.9% for the same-store portfolio. In addition, we’re pleased with the progress related to the initial lease-up of our 2015 development deliveries and our 2014 and 2015 acquisitions. On page 15 of the supplemental, you will see that these properties are 67.1% pre-leased for the upcoming academic year with three assets pre-leased to 99% and above. The 2015 developments in Tallahassee and Auburn are above the individual market averages. The Philadelphia and Eugene developments are slower. With regard to Eugene, last fall, a competitor missed the delivery of their project, which has caused the market to be somewhat more cautious on new property year one lease-ups. Our properties on schedule and will be delivered on time. We initiated hard-hat tours last week and expect velocity to positively respond in the coming weeks. In Philadelphia, vacancies and significant price decreases at EVO, which opened in fall 2014 but did not stabilize [technical difficulty] of new or redeveloped properties entering the market this fall resulted in an effective total of 2,782 new beds, which is putting short-term pressure on the market. We continue to strategically work in partnership with Drexel to ensure any impacts are isolated to this year. Now, I’ll turn the call over to Jamie to discuss our on-campus development activity.

[Jamie Wilhelm:]

Thanks, Jim. As you’ve seen in our last two quarterly press releases, our ACE program and third-party development activities are gaining significant momentum. As we mentioned in our earnings press release, our ACE development program expanded with the award of an additional 620-bed on-campus apartment community at Northern Arizona University in Flagstaff. Project represents a fourth phase of development at NAU and is scheduled for fall 2017 delivery. Following up on our previously announced five new ACE projects, during the quarter, the Company entered into a memorandum of understanding relating to the demolition of an approximate 550-bed residence hall and the development of an approximately 1,600-bed freshmen residence hall, serving students at Arizona State University’s Ira A. Fulton School of Engineering. The modern living-learning community will be located on ASU’s main campus in Tempe and we’re targeting a fall 2017 delivery. Pre-development activities relating to the redevelopment of another existing ASU apartment community are also underway. That project is early in its conceptual planning and we’re also targeting a potential fall 2017 delivery. Additionally, during the quarter, the Company executed an interim services agreement with University of Louisville Foundation for the proposed development of an approximate 532-bed apartment community on the University of Louisville main campus. Pre-development activities relating to the project are ongoing and we’re working towards a fall 2016 delivery. In the event, we’re unable to obtain a necessary administrative approvals for the project, we will then target a 2017 delivery. Pre-development activities relating to a first-year residence hall with University of Louisville on an alternate site are ongoing and we will update the market as project details become available. As previously announced, pre-development activities for our second ACE community at Butler University have begun as well. The proposed modern residence hall will be located on Butler's main campus and will replace an existing functionally obsolete dormitory. We are presently targeting a project delivery in either fall of 2017 or 2018. With regard to our current ACE developments, our fall 2015 delivery of the Summit at University City, a $170.7 million project at Drexel University remains on time and on budget. Additionally, we have commenced construction on the extensive renovation of our University Crossing ACE project at Drexel and we expect the project to be completed in the fall 2015. Our $50.4 million project on the University of Southern California Health Sciences campus remains on schedule for occupancy in the fall of 2016. During the quarter, construction commenced on our 633-bed, $39.6 million initial phase up on the campus of Butler University. The project is on schedule for a fall 2016 delivery. And finally, our 379-bed $44.6 million second phase of faculty and staff housing at Princeton University is expected to commence in the second quarter with the phase delivery in fall 2016. Turning now to our third-party developments, during the quarter, the company entered into an interim services agreement with Oregon State University relating to the plan development of a new student residence hall and dining facility to be located on the OSU Cascades campus in Bend, Oregon. Predevelopment activities have commenced and various state and local municipal approval processes have been initiated. The final project scope and delivery schedule will be determined in the coming months as the approval process reaches its final conclusion. With regard to the company's previously announced project at Northeastern Illinois University, predevelopment activities are largely complete and we expect to close the transaction and commence project construction during the current quarter with a targeted fall 2016 delivery. We're estimating to earn approximately $2 million in fees on each of these projects. With regard to the fall 2015 third-party deliveries, the 492-bed Honors Residence Hall at the University of Toledo and the 482-bed Texas A&M University-Corpus Christi apartment community remain on schedule. The 715-bed Lakeside Graduate Community at Princeton University is scheduled to be completed and placed in service in June. And finally, with regard to our previously announced mandate from the University of Vermont, subsequent to quarter end, the company entered into an interim agreement to perform predevelopment services relating to the development of an estimated 700-bed residence hall on University's main campus in Burlington. Pre-development activities have commenced targeting a fall 2017 delivery and various state and local approval processes have been initiated. The final project scope, transaction structure and delivery schedule will be determined in the coming months. In addition to the activity outlined above, we remain active in more than a dozen formal procurements or direct negotiations and continue to attract a substantial number of future on-campus opportunities. Having summarized our on-campus activities, I'd like to turn the presentation over to William to discuss our overall investment activity.

[Bill Bayless:]

Thanks, Jamie. Turning first to development, we continue to make progress on our fall 2015 own deliveries totaling 3,188 beds and $314 million in development. Our fall 2016 own developments include five projects consisting of 2,404 beds and $233 million in development costs as we now expect our 536-bed project at West Virginia University to be delivered for fall 2016. Our announced own developments for potential delivery in fall 2017, including the six ACE projects that Jamie discussed, now total seven projects consisting of 5,300 beds and over $400 million in development cost. In addition, our active shadow pipeline for off-campus developments in 2017 and 2018 consists of an additional five projects totaling over 3,100 beds and representing over $215 million in development cost. All of these activities represent an own development pipeline for the next three years of 21 projects totaling over 14,000 beds and $1.2 billion in development costs. And there are still plenty of opportunity to add both additional ACE and off-campus development for fall of 2017 and 2018. All these developments are located either on-campus or immediately pedestrian to core campus and are targeting nominal yields of 6.5 to 7.0, these developments are expected to be immediately accretive upon delivery as private market valuation for similar core assets has consistently been at cap rates between 5.0% and 5.5%. Turning now to acquisitions, we completed the acquisition of three additional core pedestrian assets during the quarter, totaling 1,546 beds at the campuses of Texas State University and Virginia Commonwealth University. The premier assets averaged just over two years old or less than 0.1 miles to campus and are currently 96% occupied. The purchase price for these three assets was $135.5 million, and the Company intends to spend $4.3 million on upfront capital improvements. The purchase price represents a year-one nominal and the economic cap rate including upfront capital expenditures of 5.6% and 5.3% respectively. However, due to GAAP adjustments and first-year integration costs, the three assets are expected to contribute $5 million in NOI for calendar year 2015. With regards to our disposition program and addition to the previously disclosed $174 million that closed in January, the Company executed on three additional non-core dispositions during the first quarter totaling 1,894 beds at a sales price of $57 million. The three assets averaged 1.2 miles to campus over 11 years of age and were sold at a weighted average economic cap rate of 5.9% based on in-place revenues, escalated trailing-12 operating expenses and portfolio average capital reserves. In addition, the Company is currently under contract to sell seven assets totaling 5,096 beds for $173.6 million. The seven assets averaged 1 mile to campus and are over 16 years old. The seller is through due diligence and the sale is contingent upon the buyer’s receipt of financing with an expected close during the middle of the second quarter. Pending the successful closing of these seven assets, the Company will have executed on the sale of 21 assets during 2015 totaling $405 million, which represents the high-end of disposition volume included in our 2015 guidance. With that, I'll now turn it to Jon to discuss our financial results.

[Jon Graf:]

Thanks William. For the first quarter of 2015, we reported total FFOM of $76.1 million or $0.67 per fully diluted share, which meet our internal expectations. This compares to FFOM of $70.9 million or $0.66 per fully diluted share for the comparable quarter in 2014. As compared to the first quarter of 2014, 2015 first quarter results benefited from the previously discussed strong same-store operating results in the six development properties placed in service during 2014. This was partially offset by lost FFOM from the sale of ten disposition properties during 2015, whose FFOM contribution was $3 million less this quarter as compared to 2014. Corporate G&A for the quarter was in line with internal expectations at $4.8 million. G&A is anticipated to be slightly higher in future quarters during 2015, due to the timing of restricted stock award amortization, board compensation earned in connection with their re-election at the upcoming annual shareholder meeting and cost from enhancements to our operating platform in terms of system development. We continue to expect to be within the previously provided annual guidance of $20.8 million to $21.1 million for 2015. As of March 31st, 2015, the Company’s debt to total asset value was 40.6% and the net debt to run rate EBITDA was 7.1 times. As of quarter end, we had approximately $4.5 billion in unencumbered asset value, which was almost 68% of the Company's total asset value. In addition to the net proceeds raised under our ATM discussed on the last earnings call, we also completed $231 million in property dispositions this quarter, we paid of $125.4 million of maturing fixed rate debt and construction loans and we reduced our amount outstanding under our revolving credit facility by $100.6 million. This allowed us to fund our previously discussed 2015 growth opportunities, while maintaining strong credit ratios in creating significant capacity for our future growth pipeline. Remaining fixed rate debt maturities for 2015 are $101 million or 3.8% of the company's total indebtedness. Management believes that between the current capacity on our revolving credit facility, cash generated from operations and the ability to match fund via our disposition program that we have ample capital for our wholly-owned development projects being delivered in 2015. Our total interest expense for the quarter, excluding $1.5 million from the on-campus participating properties, was $20.5 million compared to $19.9 million in the first quarter of 2014 and the company's cash interest coverage ratio for the last 12 months was 3.5 times. Interest expense is net of approximately $2.9 million in debt premium amortization and $2.5 million in capitalized interest related to owned projects in development. Turning now to 2015 guidance, we are maintaining our previously stated FFOM guidance range of $2.30 to $2.42 per fully diluted share. For the balance of the year, the most significant factors that will impact where we will be within this FFOM guidance range are as follows. For property NOI, we previously communicated total owned property NOI of $370.1 million to $389.1 million, which includes the impact on NOI from property acquisitions and dispositions. The NOI ultimately produced for the year will be contingent upon final occupancy and rental rates obtained for the 2015, 2016 lease-up, managing no shows, maintaining operating expenses including turn costs at anticipated levels, final property tax assessments and the timing and amounts of investment activity. Acquisitions of $223.5 million were assumed at the low end of the NOI range and at the high end, $418.5 million was assumed. To date, we have completed $165.3 million. With regard to dispositions, the low-end of NOI range assumes $230.7 million and at the high-end, assumes $36.1 million. To date, we have completed $57.1 million with an additional portfolio that William discussed that would take us to $230.7 million for 2015. Guidance assumptions as well as [ph] the timing for both acquisitions and dispositions are detailed in the company's fourth quarter 2014 supplemental analyst package. For interest expense, excluding the on-campus participating properties, we communicated a range of $81 million to $88.1 million net of capitalized interest. The interest expense range is primarily dependent on both the timing and size of dispositions and acquisitions and the timing and need of an anticipated mid-year unsecured bond offering. Concerning third-party services revenue, the fee range is primarily dependent on the finalization of documents and commencement of construction. Our current assumptions for the Northeastern Illinois University and Oregon State University Cascades projects are outlined on page 18 of the supplemental. With that, I will turn it back to Bill.

[Bill Bayless:]

Thank you, John. In closing, let me first correct the transcript and then my opening comments, the theme informing, I used the word headwinds instead of tailwinds. And so certainly what I meant conveying as the accurate assessment of our sector is we are experiencing significant tailwinds. For those of you that may have attended the InterFace Student Housing Conference here in Austin in April, you would certainly be able to attest to that in terms of the vibrancy the entire sector is currently experiencing. In closing further, again, we are very pleased with a solid quarter of internal same store growth, which leads to progress in our initiatives related to margin improvement and also with the high-quality growth via both acquisitions and development with some real momentum occurring in our ACE program. With that, we will open it up to Q&A and Daniel and I will attempt to answer your questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Nick Joseph from Citigroup. Please go ahead.

[Unidentified Analyst:]

Great. Thanks. This is John here with Nick. Couple of questions on development. What drove the reduction on the low-end of guidance for the expected stabilised yields for the 2015-2016 12 months?

[Bill Bayless:]

Yeah, in some of the development pipeline, we have talked about yields as low as 6.5%. Couple of things driving that, and it’s really a deal-by-deal assessment. There are certainly -- and I think we’ve commented this on the past, there are certain markets that we’ll enter that just based on MSA characteristics, West Coast MSA, where cap rate compression is significant, certainly that type of yield is justified. In this particular round of developments, one specifically to 6.5% is the West Virginia property, which is an existing asset there that we bought about seven years ago, always with the intent of demoing the existing beds and taking down. In that particular transaction, again in a market where we know well where we have operated on that site and its replacement beds, there is a lower risk profile for the stabilization of that. I mean, in this case, there is really some unique complexities in terms of the development at site itself, which is being from West Virginia, I am not surprised maybe it sits on the side of the hill, they have some extraordinary cost. And so on a case by case basis, as we do look at our development opportunities, in many cases, that 6.5% is justifiable based on the projected growth profile of the transaction coupled with reversionary cap rates in those particular markets.

[Unidentified Analyst:]

Okay. And then I know you briefly addressed this in the opening remarks, but for the Louisville ACE development when would you at the start construction for to be delivered in 2016? All right, what else needs to be done to get that to make 2016 delivery?

[Jamie Wilhelm:]

Hi, this is Jamie speaking. Right now, we are going through the process of getting final building permits, approvals and so forth and likewise, we’re working towards getting the final acquisition of the site. Some of the site that there is a – the foundation university and the city we have to put together some pieces of the puzzle and that is going to take some more time. So if that happens promptly, we will be able to begin construction, if it’s not we will just push a year.

[Unidentified Analyst:]

Okay. Thank you. Operator And the next question comes from Jeff Spector of Bank of America. Please go ahead.

[Jeff Spector:]

Thank you, good morning. If you could just, I guess, comment on if you’re seeing any new players, new entrants in the space you’re bidding for the Public-Private partnerships?

[Bill Bayless:]

The Public-Private partnerships, Jeff, there is a lot of activity in terms of the folks that are pursuing those transactions. Like your larger Tier 1 land-grant institutions when you start with an RFQ, request for qualifications, it’s not unusual for it to be dozens of dozens of companies. At the national scene in prominent players, it continues for the most part to still be the same cast of characters that have the ten-year plus legacy American Campus, EDR, Capstone Development, they are probably the most prominent three. Over the last five years, you have seen companies such as Balfour Beatty and also Inland pursuing more of those opportunities, but still continues to be a pretty stable group of companies. And we would continue to comment that that particular sector of our business continues to have the highest barriers to entry and that these colleges and universities are not just viewing this as a real estate transaction, but rather who can create communities that are conducive to academic achievement and the whole support of the academic mission, which really eliminates a lion’s share of your traditional real estate developers that just don’t understand that part of the mission.

[Jeff Spector:]

Okay, thanks. Then on that, I guess, does it matter the weighting [ph] of ACE versus Off-Campus when you think about your development pipeline?

[Bill Bayless:]

No, you know, historically it has always been about 50-50 and as William commented, we have great activity on both fronts. So we continue to see activity certainly from a number of transactions. When William talked about the shadow of pipeline, it still continues to be split down the middle. Now, the one thing that we benefited from ACE over the years, which certainly in the last two calls you have seen a great deal of announcement in that activity, is the ACE transactions tend to be bigger. And so from a dollar volume perspective there definitely is an emergence that ACE could begin to perhaps tip beyond that 50%, but we continue to see activity in both segments fairly evenly.

[Jeff Spector:]

Thanks. And then last, I am sorry, if I missed this, but on operations, I know you discussed the cost controls in the first quarter. Did you comment if that changes the outlook for the year or was this more of a timing issue in the first quarter?

[Daniel Perry:]

Yeah, Jeff, this is Daniel. You know, it certainly was a good quarter. I don’t think that there is any real time impact on cost efficiencies and those kind of things. We don’t -- we think it’s still early in the year to change our overall outlook for NOI, I mean, this has been one quarter behind us now. We really try to get a better look at the full year and then obviously over lot of the other impacts for the year in terms of acquisition timing, disposition timing, how the lease-up progresses throughout the year before we would have any kind of address or addressing our guidance for any kind of change.

[Jeff Spector:]

Great, thank you.

[Bill Bayless:]

Thank you.

[Operator:]

And the next question comes from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

[Jordan Sadler:]

Thank you, good morning.

[Bill Bayless:]

Morning.

[Jordan Sadler:]

I had a question regarding sort of the leasing pace, it looks right now on the same-store -- same-store basis, you guys are 10 basis points ahead on a lease basis, but excluding the ASU properties, break through assignments, it’s a 180 basis points ahead. Now, I’m curious, one, how that 180 -- sort of what’s impacting the assignment process and where you would expect those properties to end the year, if you have any insight into that that you can offer? And then separately, as it relates to the 180, is that -- I know it’s still early here, but is that factoring into your expectations or how does that factoring into your expectations for revenue guidance for 2015 and 2016 as I think that’s obviously -- that would be running ahead of what your guidances on an occupancy basis?

[Bill Bayless:]

Sure. First, as it relates to Arizona State University and the assignment process and really it is a complete non-issue and it really just exemplifies. We always talk about in our business at all. The only thing that matters is where you end up in occupancy and rate at the end of the leasing season. And certainly, when you look at the freshmen residence hall products at the Arizona State University, they represent the absolute best market condition you could ever own student housing under and that those properties are covered under the University’s freshmen housing requirement and they nearly administer their assignment process and in all candor, colleges and universities pay no attention to quarterly velocity, have no incentive nor motivation due to they think it’s important is to where they are at any moment in time in February, March, April or May and they administer based on the pace of academic admissions and working with the deans of the colleges to ensure that the groupings take place consistent with the academic focus. And so, the slower velocity issue is of no concern to us whatsoever. Enrollment is great, admissions are great, market conditions are fantastic. It’s just merely reflects that it is an administrator process versus an open market process, where you guys are concerned about open market velocity trending that may impact the end result. And so, in that regard, there is no concern there from our perspective. And so, when you look at the remainder of the portfolio, that does operates under an open market leasing perspective, indeed we are running on 180 bps ahead in that regard. Now, I would say, please don’t add 180 bps to last year’s occupancy and think that that’s where we’re going to end up. We still have a long way to go to finish up this lease-up and so, it’s just as Daniel just answered the same-store growth question through Q1, it’s way too early to put any final trending to sort of final numbers. And so, we’re certainly pleased with where it is at this point in time, but there is a lot of wood left to be chopped.

[Jordan Sadler:]

And that makes sense. As it relates to development, it would be the $1.2 billion of deals that appear to be in the pipeline right now. I noticed too that the yield dropped at the low-end to the 6.5% and I’m kind of curious as do you become incrementally discerning from a return perspective or a quality perspective from here, what is the -- given sort of the size of the pipeline or does the criteria kind of stay the same for new development?

[Bill Bayless:]

Yeah, the criteria stays the same. It certainly, you know, some of the things that we look at when you look at our capital allocation opportunities and when we’re able to go out, when you look at acquisitions in markets where we just can’t enter through development, that is if we can enter through development versus acquisitions, we do because it's a more attractive basis of which to enter that market. So when we're buying obviously the opportunity is there for us to acquire in better locations, good products with the best growth rates possible. Now in a trade-off, when you look at -- we go out and we tour assets on development sites that we passed on two to three years ago when we were holding steady at 7. And now those assets are on the market, properties that are not ACC spec, not ACC design, perhaps run at a little higher CapEx because of ours, does it make sense in certain markets we are talking previously to go ahead and take that 6.5 cap and we can get all the benefit of ACC design, ACC market expertise, product design and CapEx. And so we hold true to looking at what is the best opportunity to enter a market through the lowest base as possible. And so at times that 6.5 that we talked about does indeed make great sense and is the most accretive for the shareholders long term.

[Jordan Sadler:]

Okay. Last one, just on the acquisition dispositions that are in guidance, do we have a cap rate spread or should we expect it to be in terms of what's embedded in that NOI guidance number or should we just anticipate that it will be similar to what's been done so far?

[Daniel Perry:]

Jordan, this is Daniel. When we do our guidance, we assume a general disposition cap rate of 6.5. As you saw with the recent acquisitions in the mid-5, that being said, with a few that's -- and it was a smaller portion of the overall disposition package but the few that we completed in the first quarter were at 5.9, so a little better than 6.5, which is obviously a positive and we are very excited about that. But generally the kind of assets that we're disposing of are those assets that we talk about, typically drive properties in good markets that are doing trade in that mid to low 6 cap range and the kind of assets that we're looking to buy that have the best long term NOI growth profiles that are going to be in the mid-5 to low-5 cap rate range. And so you are going to see that point spread in most situations, but trading for a much better NOI growth profile.

[Jordan Sadler:]

Okay. Thank You.

[Daniel Perry:]

Thank you.

[Operator:]

The next question comes from Ryan Meliker of MLV. Please go ahead.

[Ryan Meliker:]

Hey, guys, I just have two. One is a pretty quick kind of modeling question. So it looks like you guys have about $200 million or so in incremental development spend for this year assuming no other announcements are made. Any idea what the planned funding path will be for that? Obviously I know you've got a lot of avenues and liquidity is not a concern. I'm just thinking from our perspective, are you looking to put it on the line, issue of any bonds or tap the ATM, and all of the above et cetera?

[Daniel Perry:]

Sure. Hey, Ryan, this is Daniel. So as we think about capital uses for the year, and I would say that based on our construction schedules, we think it's about $150 million less that have to spend this year. $75 million left on the 2015 deliveries, little over $80 million is our kind of guesstimate on what we will spend on the 2016 deliveries with about $123 million spent in 2016. But if you think about throughout the rest of '15, we do have the $173 million disposition portfolio out there that William talked about in his prepared remarks. Obviously we would anticipate using proceeds from that, but we all – in the bigger picture, we've also got debt maturities that will come out throughout the year. So kind of cash is fungible. And so in total sources of capital this year, we've got the $173 million in dispositions. We are anticipating a bond offering at some point in the second half of the year that, as probably we saw, look to size somewhere in that $300 million range. And then, as you mentioned, we got plenty of capacity on the revolver, cash flow from operations tends to be about $65 million a year over and above our dividend and scheduled principal payments and all of that good stuff. So certainly plenty of capacity from what we have on hand.

[Ryan Meliker:]

Thanks, Daniel, that's helpful color. The other question I had was, I am wondering if you guys can give any commentary in terms of your appetite to do anything with what's going on over at Campus Crest, I know you guys have publicly stated in the past that you wouldn't be interested in acquiring Campus Crust, but I'm just curious given it seems like there is a lot of back and forth with a bunch of different potential partners, if there is anything that you guys see that could be interesting to create shareholder value by trying to figure out some way to work with them going forward?

[Bill Bayless:]

I'll give the same comment I have for the last couple of years, and that you know the key to American Campus success and what we have told you from one day since our IPO forward is, for us, the key is staying true to our investment criteria, proximity to campus, differentiated product in submarkets with barriers to entry. And so, God bless all the work that's being done over there and the folks that are working hard but that portfolio just in no way shape or form meets our personal investment criteria.

[Ryan Meliker:]

Alright, that's what I thought you'd say, thanks a lot of Bill that's all from me.

[Operator:]

Your next question comes from Ryan Peterson from Sandler O'Neill, please go ahead.

[Ryan Peterson:]

Yeah, thanks, a couple of questions. One at the InterFace Conference, there is a lot of talk about the shortage of wood-frame sub-contractors, that had any impact on your developments, how are you guys dealing with that?

[Bill Bayless:]

And we talk a little bit about that Conference, there has certainly been a little bit of -- not a little bit, over the last five years probably about 7% a year averaging about 30% over that time period, but where you see the issue is in bid coverage, when you get ready to start a job off, you just can't get as many as much depth in the bids especially in that area as you could previously and so that's the one area where you do see some escalation in terms of labor in that area. We have been able to get through that given our significant development history and then the traits that work with us all across the country and the relationships we have with the prominent regional general contractors that we're using. So, certainly it's had an impact on the overall pricing but it's not been a determent to any individual transaction for us in terms of getting the job done.

[Ryan Peterson:]

Okay great, thank you and then, second question is, with schools kind of seeking more and more non-residential aspects to dormitories, what kind of things are they giving up, so that you guys at ACC are still able to meet your hurdles.

[Bill Bayless:]

But you know and this is, they really don't have to give up a lot, and that you know when we come in and one of the greatest benefits that we bring to these on-campus transactions is the core competency to truly deliver better market based products at a lower cost at affordable rates that are not only self-sustaining, but rather than them giving something up to us, actually also allows them to be compensated for the fair value of the land that they bring to the equation. Now, the greatest thing that they can bring to that equation in many cases as you've seen in the majority of ACE deals, is a real estate tax exemption and that that land their bringing to the table, they're bringing that exemption with it, which candidly they’re compensated for in terms of the fair market value of that land mapping [ph] subject to it, but it eliminates one of the single greatest cost variables going forward, its typically something you worry about the escalation. In other cases, some universities want you to tie into their utility systems that can be a benefit to the operations of the property, some cases it can be a detriment, tying to the center plant maybe more and we want to go off-campus in terms of the utilities that are available. So in each situation, the university depending upon what their objectives are, what they want, typically we're able to accommodate them without them having to give something up per se.

[Ryan Peterson:]

Okay, great, that's helpful thank you.

[Operator:]

Your next question comes from Drew Babin from Robert W. Baird, please go ahead.

[Drew Babin:]

Good morning.

[Bill Bayless:]

Good morning.

[Drew Babin:]

First question, just you know obviously the stake of case studies from the ACE program on, there have been a lot of great examples of you know being on, being guaranteed that land on-campus just having a captive audience in terms of students, there is a few projects though that are starting to be a little tougher specifically at Albuquerque and Glendale. I was hoping you could talk a little bit about you know in the rare cases, these deals don’t allow -- issues sort of emerge, what is going on at assets like that, and how is it pertaining to how you look at ACE program as a whole.

[Bill Bayless:]

And starting with the Glendale project which is ASU West, which I will say has greatly exceeded pro forma and as you all may recall, years ago on that satellite campus, and this was very much a build and day will come and so from a market real estate demand it was, the demand wasn't yet there when this project was conceived but it was an intrical part of President Crow's vision, and so what we did with that transaction was we did what was called the triad where that project was cross collateralized with Manzanita and Phase 2 of Vista del Sol to get a blended return to us to help subsidize it. And so it has actually performed above pro forma this year, while you see it behind at this moment in time, it’s related to again the assignment process at ASU. And so that is one that through the transaction structure, we were able to mitigate the financial underperformance that we knew would take place in the early years that is now transforming. In the case of Albuquerque, it just was a unique situation and that the State of New Mexico had placed, I believe, it was lottery revenues towards scholarships and there was a change in the administrative awarding of the scholarships to where previously a student would get that access to that money in their first semester, prior to any academic performance measures and have the look back at that being retrospect, where there was a change in the administration of it where they could only access the funding after their first semester. And so what actually caused some students to delay moving into the campus in their first semester until that administrative awarding took place. And so that's one where they were working through with the institution that actually is impacting some of the off-campus properties, it is not isolated to ACE’s more of a market condition. But those are the things that whenever those type of challenges do occur, you’re always in a better position to be in partnership with the University working in tandem with them, then perhaps you would be in an off-campus open market environment.

[Unidentified Analyst:]

Great, that's helpful. And secondly, I was hoping you could talk a little bit about just the enrolment trends in the market for you requiring, namely Syracuse, Richmond, [indiscernible] and Texas State?

[Bill Bayless:]

Yes. And when you look at Syracuse enrolment this year, it appears to be slightly up, it's currently at about 21,492 students, ‘14 was up right about 1% over the prior year and again and when we categorize universities, anything that is minus 2% to plus 2% annually is a stable institution and you will have some fluctuation. When you look at Eugene, there is a slight decrease, down about 1% over the prior year and as it relates to Richmond, inside of 1%, 0.4% reduction. So stable. So all of those qualify in the stable category of enrolment growth. And again as we talk about, anything, we always use Austin as the example and the University of Texas has been 50,000 students for the last 25 years and every year, it's either slightly down 1% or slightly up 1%. So that represents stable supply in this sector.

[Daniel Perry:]

I think the other one he asked about was related to the Texas State, just as the acquisition, which was up 3.4%.

[Bill Bayless:]

That's a high growth and that would be categorized as high-growth, anything above 2% annually.

[Unidentified Analyst:]

Great. Thank you, that's helpful. And that's all from me.

[Operator:]

The next question comes from Carol Kemple from Hilliard Lyons. Please go ahead.

[Carol Kemple:]

Good morning. Earlier, you all talked about some pending dispositions that you have under contract, how many beds was that?

[William Talbot:]

Hi, Carol. This is William, it's a little over 5000, 5096 beds in total.

[Carol Kemple:]

Okay. And can you give any details on the age of that portfolio, or how far they are from campus?

[William Talbot:]

Yeah. It's a little over 1 mile from campus and just short, or roughly 16 years of age.

[Carol Kemple:]

Okay, thank you.

[Operator:]

[Operator Instructions] Our next question comes from Ryan Burke from Green Street Advisors. Please go ahead.

[Ryan Burke:]

Thank you. A follow-on to the last question, your comments seem to indicate that it was a single buyer for those seven assets, can you confirm whether that is a true statement and aside from that, just talk a little bit about new capital coming in to the space on the acquisition site?

[William Talbot:]

Yeah, this is William. That is with a single buyer, it is an experienced buyer in the sector, as Bill discussed a little bit, we are seeing a lot of new capital coming to the sector. As we've discussed at InterFace and other farms, we did sell a portfolio to Starwood in the first quarter that was a new entry along with another portfolio they acquired, so that was a feather, high-profile entry into the market from an equity source. And we continue to see a lot of equity, both value-add and institutional wanting to enter the sector and entering in through various forms of development, acquisitions.

[Ryan Burke:]

Great, thanks. That’s all for me.

[Operator:]

Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Bayless for any closing remarks.

[Bill Bayless:]

Again, thank you for joining us and hearing about our Q1 results. As you can see, a lot of positive momentum in all facets of the business. And as always, I want to take the opportunity to thank the American Campus team members for all of their hard work and dedication. The next three to four months is always our busy time of the year in bringing everything to fruition. And so thanks to you all, and we look forward to chatting with you at NAREIT on the next call.

[Operator:]

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