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Article Excerpt
OPERATOR: Good morning ladies and gentleman and welcome to the Education Realty Trust fourth quarter conference call. (Operator Instructions) This conference is being recorded today, Tuesday, March 17th, 2009. I would now like to turn the conference over to Ken Avalos, of Investor Relations. Please go ahead sir.
KEN AVALOS, DIRECTOR OF INVESTOR RELATIONS, EDUCATION REALTY TRUST INC: Thank you. Good morning. Welcome to the Education Realty Trust fourth quarter and year end 2008 conference call. During today's call management may make forward-looking statements. These statements are based upon current views and current expectations. Such statements are subject to risks, uncertainties and other factors that could cause the actual results to differ materially from future results expressed or implied by these statements. Risk factors relating to the Company's results and management's statements are detailed in the Company's annual report or form 10-K and other filings with the Securities Exchange Commission. Forward looking statements speak only of expectations as of the date on which are made. Education Realty Trust assumes no obligation to update or revise such statements as a result of new information, future developments or otherwise. With that it is now my pleasure to turn the call over to Mr. Paul Bower, Chairman, President and Chief Executive Officer. Paul?
PAUL BOWER, PRESIDENT AND CEO, EDUCATION REALTY TRUST INC: Thank you and good morning, everyone. Joining me on the call today is Randy Brown, Chief Financial Officer. Also with us today to answer any questions you may have about operations is Craig Cardwell, President of our management subsidiary, Allen & O'Hara Education Services and to answer any questions on the acquisition and development front, Thomas Trubiana, Chief Investment Officer. This morning I want to update you on our progress across the strategic initiatives we provided last quarter, which were address our 2009 debt maturities, contain operating costs, evaluate disposition opportunities and generate development projects and management contracts. I will also provide some commentary on the operating environment. And then I will close with some comments on our fourth quarter results. Randy will then discuss some of the key financial items from the fourth quarter and the 2008 year, as well as discuss our 2009 guidance.
Let me start by saying that our portfolio has been resilient in the face of a deteriorating economy. Since our last call, the economy has continued to weaken, job losses have accelerated and the credit picture for consumers and corporations remains poor. Despite this adversity, the fundamentals of the student housing industry and the EDR portfolio remain stable. To that end, excluding non-routine items our fourth quarter and the 2008 annual results were in line with our previously issued guidance. In what is clearly an unprecedented economic climate, we are focused on managing our properties intensely and positioning the Company to deliver the best results possible in this environment. We are working diligently to push forward on the initiatives we outlined earlier, to further strengthen the Company. With respect to our 2009 debt maturities, in early January, we announced the signing of a $222 million credit facility with Fannie Mae. This facility allowed us to meet our previously stated objectives of refinancing the initial $185 million of debt at staggered maturities and favorable interest rates. Randy will provide more detail in his section on the amount drawn and the facility structure.
Looking forward, our team continues to work and have discussions with both banks and agency lenders regarding the remaining $98.7 million set to mature in December of 2009. We continue to evaluate different financing options regarding that debt. And we remain confident that we will execute a favorable transaction that benefits the Company and shareholders even in this difficult financing environment. As was the case with the recent Fannie Mae facility and the associated debt we retired, we are closely monitoring the situation and expect to come to a favorable resolution when the time is right.
In the meantime, the cost of defeasance reduces each month and we have the opportunity to improve the evaluation of the portfolio by increasing occupancies and NOI during the 2009, 2010 leasing cycle.
Operationally, we made good progress on the cost containment front. This was especially important since we had experienced some cost pressures in early 2008. As we outlined to you last quarter, management put in place a targeted cost reduction plan that focused on staff reductions, a wage and hiring freeze, and overall spending cuts. And we have had cost reductions across all controllable categories. We were successful in proving profitability by reducing expense growth in the fourth quarter without adverse impact on our assets or customer satisfaction.
Regarding dispositions, we continued to evaluate our portfolio, for assets that do not fit our strategic objectives or where we believe we have maximized value and therefore a sale is prudent. While interest in student housing remains strong, and we may explore sale opportunities, at this point we have nothing specific to report. We continue to make progress on our existing fee development projects and are working toward generating new, on campus and on balance sheet development opportunities. During the fourth quarter, we announced that Allen O'Hare Development Company our third party development subsidiary was selected by East Stroudsburg University of Pennsylvania to develop a $61.6 million on-campus student housing project. This is our eighth project in the Pennsylvania system of higher education. It is slated for a 2010 delivery.
We also announced during the fourth quarter that the Company has been awarded the management contract for an 11-story, 330-bed student apartment community which is located across the street from Georgia Tech University in Atlanta.
And lastly, the project at the State University of New York College of Environmental Sciences and Forestry that we mentioned last quarter continues to move forward with land acquisition and building design.
Now let me cover a few highlights and key statistics from the fourth quarter's operating results. Occupancy on a sequential basis was steady, the same community occupancy ending the quarter at 92.8% compared to 93.7% at the end of the third quarter, but down from 95.6% at the end of the fourth quarter of 2007. Occupancy excluding the three challenging markets we discussed last quarter was 94.0%. We continue to believe that low 90% occupancy is a fair target, given the extremely challenging economic backdrop and the combined with modest rate growth and strong cost controls will generate solid cash flow during this down turn.
We delivered good year over year same store financial results in the fourth quarter. Same community net operating income increased a solid 6.3% over the fourth quarter of 2007. Our same community revenue per available bed increased 1.0%, and same community operating expenses were reduced by 6.4% compared to the fourth quarter a year ago. The improvement in the operating margin was approximately 310 basis points year over year.
In addition to our previously announced debt defeasance expense, we recognized a $2 million impairment charge in the fourth quarter, which consists primarily of $1.6 million related to our Clayton Place property. We acquired Clayton Place as part of the Place transaction in 2006. It has the lowest current occupancy in that portfolio. The supply demand picture around this property has dramatically worsened in the last year as the university opened new beds and required first year students to live on campus. We continue to explore alternatives in this difficult market to see if it makes sense to sell the asset, given the competitive dynamics.
We also recognize a small, $400,000 write off of goodwill...
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