American Campus Communities Inc. Q1 2010 Earnings Call Transcript

American Campus Communities Inc. Q1 2010 Earnings Call Transcript
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American Campus Communities Inc. (ACC)

Q1 2010 Earnings Call

April 29, 2010; 11:00am ET

Executives

William Bayless - Chief Executive Officer

John Graf- Chief Financial Officer

Greg Dowell - Chief Operating Officer

Gina Cowart - Vice President of Investor Relations

Analysts

Karin Ford - Keybanc Capital Markets

Michelle Ko - Bank of America

Dustin Pizzo - UBS

James Mullen – Sandler O’Neill

Michael Levy – Macquarie.com

Erick Wolf - Citi

Dave Brag - ISI Group

David Doty- Citigroup

Stephen Swett - Morgan Keegan & Company, Inc.

Joe Dazio - J.P. Morgan

Andrew McCullough - Green Street Advisors

Paula Poskon - Robert W. Baird

Presentation

Operator

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Previous Statements by ACC
» American Campus Communities, Inc. Q1 2009 Earnings Call Transcript
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Good day ladies and gentlemen and welcome to the first quarter 2010 American Campus Communities Inc earnings conference call. My name is Haley, and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operators Instructions)

I would now like to turn the conference over to your host for today Ms. Gina Cowart, Vice President of Investor Relations; please proceed Madam.

Gina Cowart

Thank you Haley. Good morning and thank you for joining the American Campus Communities, 2010 first quarter conference call. The press release is furnished in Form 8-K 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

www.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, the references to the disclosure in the press release on the website, with the slides and SEC filing.

Management would like to inform you that certain statements made during this conference call which are not historical facts maybe 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 advice or update any forward-looking statements to reflect events or circumstances after the date of this release.

Having said all that, I would now like to turn the call over to Will Bayless, Chief Executive Officer, for his opening remarks.

William Bayless

Thank you Gina. Good morning and thank you all for joining us as we discuss our Q1 2010 results. I would also like to welcome Dan Burck, our Chairman of the Board who is here with us today in Austin.

Let me address the format of our presentation. Greg Dowell will address our operational leasing results; William Talbot will address our investment activities; J.E. Wilhelm will discuss ace and third party services; and Jon Graf will discuss financial results and our guidance. Daniel Perry and I will then lead the Q&A.

With that I will turn it over to Mr. Dowell.

Greg Dowell

Thanks Bill. Operationally it was a great quarter. Our results of operations met and in some cases exceeded our internal expectations.

If you turn to page five of the supplemental package, you will see that the first quarter same store NOI increased by 6% over Q1 of 2009. This was the result of a 3.4% increase in revenue, and a minor increase of only four tenths of 1% in operating expenses. This minimal change in operating expenses was largely attributable to a decrease in marketing costs for the quarter of $316,000, compared to Q1 of the prior year.

As you can see on page eight of the supplemental, March 31, 2009 occupancy at our same store wholly owned properties with 96.2%, compared to 92.8% for the same day in the prior year. This represents an increase of 3.4% over the prior year, and two tenths of 1% over the December 31, 2009 occupancy reported on our last call. As of March 31, occupancy for the total wholly owned portfolio was 96%.

If you turn to page nine, we can review the leasing status for the 2010 and 2011 academic year. As of Friday, April 23, our same store wholly owned portfolio was 79.3% applied for and 73.8% leased. This compares to 77.2% applied for and 73.9% lease for this approximate date in the prior year. The same store ACC legacy portfolio was 79.1% applied for and 71.4% leased, compared to 79.5% applied for and 75% leased for the same period one year ago.

The GMH same store portfolio was 79.4% applied for and 76.5% leased, compared to 74.7% applied for and 72.8% leased for the same period in the prior year. You will note the we have now stabilized the velocity of leasing at the GMH portfolio to equal that of our legacy assets, further demonstrating the success of the integration process.

We are currently projecting an overall rental rate increase of 2.2% to the wholly owned same store portfolio, consistent with the projection on our last call. Based on the current leasing velocity and projected rental rates, we would anticipate same store NOI growth of 3% to 5% for the 2010, 2011 academic year.

With that, I will turn it over to William Talbot to discuss our investment activity.

William Talbot

Thanks Greg. Turning to acquisitions, during the quarter we acquired University Heights, a 528 bed property serving the University of Alabama, Birmingham, from our joint venture of Fidelity Real Estate Group. The purchase price of $9.9 million acquired a good pricing of $19,000 a bed, well below replacement cost for this asset. We believe that under our direct ownership in asset management, the property offers strong upside related to occupancy and rental rate growth of a projected stabilized normal yield in the high sevens.

During the first quarter, there appears to have been significant change in temperament, as many in the sector have stated they are actively preparing to buy and sell assets. Brokers are expecting significantly more activity in the second half of 2010, than we selling each of the last two years. They expect us to aid our disposition progress and remain an active buyer of core assets that meet our long-term investment criteria, as well as those investment opportunities that offered net asset value creation via improved operations.

Currently, we are underwriting an excess of $500 million worth of acquisition properties, including both marketed opportunity and direct negotiation, including distressed opportunities directly from the bank. The returned interest of institutional capital and the improvement in the debt market as addressed by the GSC, once again competing with the live companies and banks to place debts, we believe there will be significant downward pressure on cap rates.

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