EdR Announces Fourth Quarter 2012 Results


- Full Year Core FFO per Share Up Over 9% -

- Full Year Same-Community Net Operating Income Up Nearly 6% -

MEMPHIS, Tenn.--(BUSINESS WIRE)-- EdR (NYS: EDR) , one of the nation's largest developers, owners and managers of collegiate housing, today announced results for the quarter ended December 31, 2012.

Company Highlights

  • Core funds from operations ("Core FFO") increased 14% to $0.16 per share/unit, for the quarter. For the full year, Core FFO increased 9.3% to $0.47 per share/unit;
  • Same-community net operating income ("NOI") for the quarter decreased 2.7% on flat revenue and a 3.3% increase in operating expenses. For the full year, same-community NOI increased 5.7%;
  • Preleasing for the 2013-2014 lease term is 460 basis points ahead of last year with the same-community portfolio 39.1% preleased, compared to 34.5% the same time last year;
  • Net rental rate increase of 2.2% anticipated for the 2013-2014 lease term;
  • Borrowing capacity under the credit facility was expanded to $375 million in January 2013, with an accordion feature to $500 million and a four-year term;
  • Acquired five communities with a total of 2,581 beds for $206.3 million;
  • Entered into a joint venture agreement to develop an $89.2 million, 901-bed community within two blocks of the University of Minnesota;
  • Sold The Reserve at Star Pass, a 1,020-bed community 4.5 miles from the University of Arizona, for $25.5 million;
  • Purchased a 10% interest in Elauwit Networks, an industry-leading provider of internet access and high-definition video service, one of the main amenities for the student housing industry; and
  • In total, the Company has approximately $442.3 million of potential new assets under contract or in development for delivery in 2013 and 2014.

"The recent expansion of our line of credit provides additional financial flexibility and capacity to take advantage of our many growth opportunities," stated Randy Churchey, EdR's president and chief executive officer. "Our pipeline of new opportunities is robust and we are positioned to drive earnings growth from our high quality well located communities around the country."

Net Income Attributable to Common Stockholders

Net income attributable to common stockholders for the quarter was $4.8 million, or $0.04 per diluted share, compared to a loss of $5.8 million, or $0.07 per diluted share, for the prior year. Operating profits from new communities, a $7.9 million loss on sale of assets in 2011 and lower interest expense were the main drivers of the improvement in net income.

Core Funds From Operations

Core FFO for the quarter was $18.1 million, up 44.2%, or $5.5 million, from the prior year. The improvement in Core FFO reflects an increase in operating profits from new communities and lower interest expense. Core FFO per share/unit for the quarter was $0.16 compared to $0.14 in the prior year.

A reconciliation of funds from operations ("FFO") and Core FFO to net income is included with the financial tables accompanying this release.

Same-Community Results

Net operating income was $15.0 million for the quarter, a decrease of 2.7%, or $0.4 million, from the prior year. This decline in operating income was primarily the result of a 3.3%, or $0.3 million, increase in operating expenses that was primarily driven by a $0.2 million acceleration in marketing spend. Net apartment rent showed a slight 0.1% decline in the fourth quarter as compared to prior year, which was comprised of a 4.1% increase in net rental rates, offset by a 4.2% decline in occupancies.

Preleasing - Fall 2013

Same-community preleasing for the 2013-2014 lease term is 460 basis points ahead of the prior year in occupancy with 39.1% of beds preleased for the fall. Net rental rates for the 2013-2014 lease term are currently projected to be approximately 2.2% ahead of the prior lease term.

The Company provides a property-by-property leasing schedule in its quarterly earnings supplement located at http://www.snl.com/irweblinkx/yearlypresentations.aspx?iid=4095382.

University of Kentucky

In December 2011, the Company was selected by the University of Kentucky ("UK") to negotiate the potential revitalization of UK's entire campus housing portfolio and expansion of such to more than 9,000 beds within five to seven years (the "UK Campus Housing Revitalization Plan"). The UK Campus Housing Revitalization Plan is being financed through EdR's On-Campus Equity Plan - The ONE PlanSM with EdR leasing, managing and operating the communities. Construction of Phase I of the plan, a 601-bed community called Central Hall is on schedule for a summer of 2013 opening.

Construction on phase II of the UK Campus Revitalization Plan, which includes four communities with 2,317 beds and a total project cost of approximately $133.7 million, was started in the fourth quarter of 2012 and is on schedule for a summer 2014 opening.

The Company and UK officials continue to work collaboratively on Phase III, which is estimated to include delivery of approximately 1,500 beds in the summer of 2015.

Investment Activity - Developments

Since year end, the Company has entered into a 50/50 joint venture to develop an $89.2 million, 901-bed community within two blocks of the University of Minnesota. The community will be developed by our partner with collaborative work on design and site plans. EdR will manage the community when it opens in the summer of 2014.

"Our existing $190.4 million of Company owned 2013 developments continue to progress nicely, costs are in line and construction is on pace for the targeted opening dates." stated Tom Trubiana, EdR's executive vice president and chief investment officer. "Furthermore, with an aggregate $442 million of potential new assets under contract or in development for delivery in 2013 and 2014, we continue to find and convert attractive investment opportunities that meet our quality, location and return criteria."

Investment Activity - Acquisitions

As previously announced, the Company completed the acquisitions of five communities with a total of 2,581 beds for $206.3 million. These transactions included;

  • The District on 5th, a 764-bed community located within walking distance of the University of Arizona for $66.4 million,
  • Campus Village, a 355-bed community adjacent to Michigan State University in East Lansing, MI for $20.9 million,
  • The Province, a 596-bed community adjacent to Kent State University, for $45.0 million,
  • The Suites at Overton Park and The Centre at Overton Park an aggregate of 866 beds adjacent to Texas Tech University for a combined $74.0 million.

In December 2012, the Company purchased a 10% interest in Elauwit Networks - an industry-leading provider of internet access, high-definition video and telephone service. While the initial investment for this minority partnership was nominal for EdR, it provides a variety of potential benefits, including reduced network operating costs along with opportunities to create innovative enhancements and generate ancillary income.

Capital Structure

In January 2013, the Company amended its credit facility, increasing the facility from $175 million to $375 million. The amended facility contains an accordion feature allowing the Company to increase the size of the facility to $500 million. The initial term of the facility is four years with one 12-month extension available under certain conditions. At the borrower's option, the interest rate per annum is equal to a base rate or LIBOR plus an applicable margin ranging from 145 to 205 basis points, depending upon leverage.

At December 31, 2012, the Company had cash and cash equivalents totaling $17.0 million and availability on its unsecured revolving credit facility of $296.0 million, considering the subsequent expansion as noted above. The Company's debt to gross assets was 31.7%, its net debt to Adjusted EBITDA was 5.7x and its interest coverage ratio was 4.2x.

Earnings Guidance and Outlook

Based upon the Company's current estimates, Core FFO per share/unit is expected to be in the range of $0.53 to $0.57 for the full year ending December 31, 2013, which represents a 13% to 21% increase over 2012. The following assumptions were used by management:

  • Full year same-community revenue growth of 1% to 3%, including revenue growth of 3% to 5% for fall 2013, and operating expense growth of 2.5% to 3.5% for the year, resulting in NOI growth of 3% to 6% in the fall and NOI flat to up 3% for the full year;
  • NOI of $6.0 million to $6.5 million from 2013 development deliveries, excluding pre-opening expenses;
  • Third-party development and management fees from existing contracts of approximately $5.5 million, respectively, with related general and administrative costs of approximately $6.5 million;
  • General and administrative expense is expected to increase 5% to $7.2 million. This estimate does not include acquisition or development pursuit cost as our guidance does not include these types of transactions;
  • Ground lease expense is expected to be $6.3 million, which includes $4.4 million of straight-lined ground rent that will be excluded from Core FFO;
  • Preopening expenses related to development deliveries of approximately $2.0 million;
  • Interest expense is expected to be between $17.0 and $20.0 million, net of capitalized interest of $6.0 million to $7.0 million; and
  • Full year weighted average shares/units of 114.9 million.

The guidance for 2013 does not include the impact of any new third-party development or management contracts, acquisitions including pre-sale agreements or purchase options, dispositions, additional ONE PlanSM developments or capital transactions.

Webcast and Conference Call

EdR will host a conference call for investors and other interested parties beginning at 10:00 a.m. Eastern Time on Tuesday, February 19, 2013. The call will be hosted by Randy Churchey, president and chief executive officer, and Randy Brown, executive vice president and chief financial officer.

The conference call will be accessible by telephone and the Internet. To access the call, participants in the U.S. may dial (877) 705-6003, and participants outside the U.S. may dial (201) 493-6725. Participants may also access the call via live webcast by visiting the company's investor relations Web site at www.EdRTrust.com.

The replay of the call will be available at approximately 1:00 p.m. Eastern Time on February 19, 2013 through midnight Eastern Time on February 26, 2013. To access the replay, the domestic dial-in number is (877) 870-5176, the international dial-in number is (858) 384-5517, and the passcode is 408010. The archive of the webcast will be available on the company's website for a limited time.

About EdR

EdR (NYS: EDR) is one of America's largest owners, developers and managers of collegiate housing. EdR is a self-administered and self-managed real estate investment trust that owns or manages 67 communities in 24 states with over 37,000 beds within more than 12,500 units. For more information please visit the company's website at www.EdRTrust.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Statements about the Company's business that are not historical facts are "forward-looking statements," which relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts" or "potential" or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Forward-looking statements are based on current expectations. You should not rely on forward-looking statements because the matters that they describe are subject to known and unknown risks and uncertainties that could cause the Company's business, financial condition, liquidity, results of operations, Core FFO, FFO and prospects to differ materially from those expressed or implied by such statements. Such risks are set forth under the captions "Risk Factors," "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" (or similar captions) in EdR's most recent annual report on Form 10-K and quarterly reports on Form 10-Q, and as described in EdR's other filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made, and, except as otherwise may be required by law, the Company undertakes no obligation to update publicly or revise any guidance or other forward-looking statement, whether as a result of new information, future developments, or otherwise.

Non-GAAP Financial Measures

Funds from Operations (FFO)

As defined by the National Association of Real Estate Investment Trusts, FFO represents net income (loss) (computed in accordance with U.S. generally accepted accounting principles ("GAAP")), excluding gains (or losses) from sales of property, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. The Company presents FFO available to all stockholders and unitholders because management considers it to be an important supplemental measure of the Company's operating performance, believes it assists in the comparison of the Company's operating performance between periods to that of different REITs and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their operating results. As such, the Company also excludes the impact of noncontrolling interests, only as they relate to operating partnership units, in the calculation. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. In October 2011, NAREIT communicated to its members that the exclusion of impairment write-downs of depreciable real estate is consistent with the definition of FFO and prior periods should be restated to be consistent with this guidance. Accordingly, we have restated all periods presented to reflect the current guidance.

The Company also uses core funds from operations, or Core FFO, as an operating measure. Core FFO is defined as FFO adjusted to include the economic impact of revenue on participating projects for which recognition is deferred for GAAP purposes. The adjustment for this revenue is calculated on the same percentage of completion method used to recognize revenue on third-party development projects. Core FFO also includes adjustments to exclude the impact of straight-line adjustment for ground leases, gains/losses on extinguishment of debt, transaction costs related to acquisitions and reorganization or severance costs. The Company believes that these adjustments are appropriate in determining Core FFO as they are not indicative of the operating performance of the Company's assets. In addition the Company believes that Core FFO is a useful supplemental measure for the investing community to use in comparing the Company to other REITs as most REITs provide some form of adjusted or modified FFO.

Net Operating Income (NOI)

The Company considers NOI to be a useful measure of its collegiate housing operating performance. The Company defines NOI as rental and other community-level revenues earned from our collegiate housing communities less community-level operating expenses, excluding management fees, depreciation, amortization, ground lease expense and impairment charges and including regional and other corporate costs of supporting the communities. Other REITs may use different methodologies for calculating NOI, and accordingly, the Company's NOI may not be comparable to other REITs. The Company believes that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. The Company uses NOI to evaluate performance on a community-by-community basis because it allows management to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on the Company's operating results. However, NOI should only be used as an alternative measure of the Company's financial performance.

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

Adjusted EBITDA is defined as net income or loss excluding: (1) straight line adjustment for ground leases; (2) acquisition costs; (3) depreciation and amortization; (4) loss on impairment of collegiate housing assets; (5) gain on sale of collegiate housing assets; (6) interest expense; (7) other non-operating expense (income); (8) income tax expense (benefit); (9) non-controlling interest; (10) applicable expenses related to discontinued operations; and (11) budgeted EBITDA for properties owned less than 12 months so that a full 12 months of EBITDA is reflected for acquisitions. EBITDA is not adjusted for properties under development for ownership by the Company until the properties open. We consider Adjusted EBITDA useful to an investor in evaluating and facilitating comparisons of our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results.

       
 

EdR AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)

 

December 31, 2012

December 31, 2011

(unaudited)
Assets
Collegiate housing properties, net $ 1,061,002 $ 803,519
Assets under development 159,264 56,648
Cash and cash equivalents 17,039 75,813
Restricted cash 6,410 4,826
Other assets 80,972   37,003  
 
Total assets $ 1,324,687   $ 977,809  
 
Liabilities and equity
Liabilities:
Mortgage and construction loans, net of unamortized premium $ 398,846 $ 358,504
Unsecured revolving credit facility 79,000
Accounts payable and accrued expenses 57,123 31,766
Deferred revenue 17,964   14,409  
Total liabilities 552,933   404,679  
 
Commitments and contingencies
 
Redeemable noncontrolling interests 8,944 9,776
 
Equity:
EdR stockholders' equity:

Common stock, $0.01 par value per share, 200,000,000 shares authorized, 113,062,452 and 91,800,688 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively

1,131

918

 
 

Preferred shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding

Additional paid-in capital 849,878 662,657
Accumulated deficit (93,287 ) (101,708 )
Total EdR stockholders' equity 757,722   561,867  
Noncontrolling interests 5,088   1,487  
Total equity 762,810   563,354  
 
Total liabilities and equity $ 1,324,687   $ 977,809  
   
 

EdR AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)

 

Three months ended December 31,

2012   2011
(unaudited)
Revenues:
Collegiate housing leasing revenue $ 39,614 $ 28,933
Third-party development services 330 622
Third-party management services 995 911
Operating expense reimbursements 2,179   2,228  
Total revenues 43,118   32,694  
 
Operating expenses:
Collegiate housing leasing operations 16,129 11,734
Development and management services 1,510 1,392
General and administrative 1,512 1,796
Development pursuit and acquisition costs 496 336
Ground leases 1,680 1,401
Depreciation and amortization 11,001 7,603
Reimbursable operating expenses 2,179   2,228  
Total operating expenses 34,507   26,490  
 
Operating income 8,611   6,204  
 
Nonoperating expenses:
Interest expense 3,449 4,221
Amortization of deferred financing costs 304 314
Interest income (131 ) (46 )
Total nonoperating expenses 3,622   4,489  
 
Income before equity in (losses) of unconsolidated entities, income taxes and discontinued operations 4,989 1,715
 
Equity in (losses) of unconsolidated entities (23 ) (39 )
Income before income taxes and discontinued operations 4,966 1,676
Less: Income tax expense 233   183  
Income from continuing operations 4,733 1,493
Income (loss) from discontinued operations 244   (7,093 )
Net income (loss) 4,977 (5,600 )
 
Less: Net income attributable to the noncontrolling interests 189   179  
Net income (loss) attributable to EdR common stockholders $ 4,788   $ (5,779 )
 
Earnings per share information:
Net income (loss) attributable to EdR common stockholders per share - basic & diluted: $ 0.04   $ (0.07 )
 
Weighted-average share of common stock outstanding - basic 113,027   85,790  
Weighted-average share of common stock outstanding - diluted 114,086   85,790  
   
 

EdR AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)

 

Year ended December 31,

2012   2011
(unaudited)
Revenues:
Collegiate housing leasing revenue $ 131,092 $ 98,491
Third-party development services 820 4,103
Third-party management services 3,446 3,336
Operating expense reimbursements 9,593   8,604  
Total revenues 144,951   114,534  
 
Operating expenses:
Collegiate housing leasing operations 63,194 48,789
Development and management services 6,268 5,506
General and administrative 6,803 6,215
Development pursuit and acquisition costs 1,105 595
Ground leases 6,395 5,498
Depreciation and amortization 35,436 25,961
Reimbursable operating expenses 9,593   8,604  
Total operating expenses 128,794   101,168  
 
Operating income 16,157  

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