Attached files
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| 8-K - 8-K - Education Realty Trust, Inc. | a8-kannouncingq42017earnin.htm |
| EX-99.2 - EXHIBIT 99.2 FOURTH QUARTER 2017 SUPPLEMENTAL - Education Realty Trust, Inc. | q42017supplemental.htm |
EdR ANNOUNCES 2017 RESULTS AND 2018 FINANCIAL GUIDANCE
MEMPHIS, Tenn., February 20, 2018 - EdR (NYSE:EDR) (the "Company"), one of the nation’s largest developers, owners and managers of high-quality collegiate housing communities, today announced 2017 results and released financial guidance for 2018.
The following compares the Company's net income, operating income, same community net operating income and Core Funds From Operations ("FFO") for the quarter and year ended December 31, 2017 to the same periods in 2016 (in millions, except per share/unit data):
Three months ended December 31, | Year ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income attributable to common shareholders: | ||||||||||||||||
Dollars | $ | 25.4 | $ | 14.1 | $ | 47.4 | $ | 44.9 | ||||||||
Per share/unit | $ | 0.32 | $ | 0.19 | $ | 0.60 | $ | 0.65 | ||||||||
Operating income | $ | 32.0 | $ | 18.1 | $ | 63.0 | $ | 49.1 | ||||||||
Same-community net operating income (NOI) | $ | 43.4 | $ | 42.7 | $ | 143.5 | $ | 142.4 | ||||||||
Core FFO: | ||||||||||||||||
Dollars | $ | 44.7 | $ | 43.2 | $ | 141.5 | $ | 123.0 | ||||||||
Per share/unit | $ | 0.59 | $ | 0.59 | $ | 1.90 | $ | 1.77 | ||||||||
Per share/unit percentage increase | 7.3 | % | ||||||||||||||
2017 Highlights
• | Core FFO per share/unit increased 7.3%, |
• | Won seven on campus awards, including two in early 2018, |
• | Delivered $281 million in owned developments, |
• | Grew collegiate housing assets by 16%, |
• | Increased quarterly dividend 2.6%, the 7th consecutive annual increase, |
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• | $900 million fully funded development pipeline representing a 32% growth in the portfolio, and |
• | Debt to gross assets, net of sold but not yet settled ATM forward equity, of 21.4% at December 31, 2017. |
Net Income Attributable to Common Stockholders
For the full year, net income attributable to common stockholders was $47.4 million, or $0.60 per diluted share, compared to $44.9 million, or $0.65 per diluted share. The $2.5 million increase in net income attributable to common stockholders for the year relates primarily to a $22.6 million increase in total community NOI offset by a $23.3 million reduction in gain on sale of collegiate housing assets.
Operating Income
For the full year, operating income increased $13.9 million, or 28.3%, over the prior year to $63.0 million. The $13.9 million increase for the full year relates primarily to a $22.6 million increase in total community NOI and a $7.1 million increase in other operating income offset by a $14.1 million increase in depreciation and amortization.
Core Funds from Operations
For the full year, Core FFO increased $18.5 million, or 15.0%, over the prior year to $141.5 million and Core FFO per share/unit increased $0.13, or 7.3%, to $1.90. The $18.5 million increase in Core FFO primarily relates to a $22.6 million increase in total community NOI.
Same-Community Results
For the full year, same-community NOI increased 0.8%, or $1.1 million, with revenue up 1.9% and a 3.7% growth in operating expenses. Expense growth was comprised of direct operating expense growth of 2.3% and an 8.2% growth in fixed costs, driven by a 10.3% increase in real estate taxes.
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Investment Activity
The Company was recently awarded the right to negotiate two new on-campus developments at Sacramento State University and UMass Dartmouth.
The award at Sacramento State is expected to be a ONE Plan development with approximately 1,100 beds targeting a 2021 delivery.
The UMass Dartmouth award will be a third-party fee development that is expected to deliver approximately 1,200 beds in 2020.
With the addition of these two on-campus awards, the Company has been awarded a total of seven on-campus developments since the beginning of 2017, including:
• | Lehigh University - ONE Plan, |
• | Mississippi State University - ONE Plan, |
• | Cornell University - East Hill Village - ONE Plan, |
• | University of South Florida - St. Petersburg - third-party development, |
• | University of South Carolina - third-party development, |
• | Sacramento State University - possible ONE Plan, and |
• | UMass Dartmouth - third-party development. |
Including active developments, 82% of the Company's ONE Plan assets and 77% of its total portfolio serve universities in the Ivy League and Power 5 conferences.
During 2017, the Company grew its collegiate housing assets by 16%, including the delivery of 3,318 beds at the University of Kentucky, Boise State University, Michigan State University, Texas State University and Northern Michigan University, for a total cost of $281 million, and the acquisition of communities at Oregon State University and Auburn University for an aggregate purchase price of $128 million.
The Company delivered the second phase of the three-phase ONE Plan development at Northern Michigan University as planned in January 2018, adding 433 beds for a cost of $24.6 million.
The Company's ONE Plan developments at Mississippi State University and Lehigh University, which were awarded in 2017, have been moved from recently awarded to active 2019 developments in the Company's fourth quarter financial supplement. The ONE Plan development at Mississippi State University is expected to deliver approximately 650 beds in summer 2019 for a total cost of $69.2 million. The ONE Plan development at Lehigh University is expected to deliver approximately 430 beds in 2019 for a total cost of $48.3 million.
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As previously disclosed, the Company anticipates disposing of six to seven communities in 2018 and its initial guidance includes disposition proceeds of between $150 million and $225 million. Although there can be no assurances that any of the dispositions will close or close at the prices indicated, the Company anticipates the majority of the dispositions will close around the end of the first quarter with the remainder in the third quarter.
In total, the Company’s active 2018 and 2019 development pipeline, which represents a 32% growth in collegiate housing assets over December 31, 2017, now includes 12 developments with a total of 7,464 beds and total project development costs of approximately $900 million. Since its third quarter earnings release, the Company has accelerated the 2019 development at the University of Hawai'i to a summer 2018 delivery. All other active developments are progressing as expected for their targeted delivery.
Capital Structure
At December 31, 2017, the Company had cash and cash equivalents totaling $24.8 million and availability on its revolving credit facility of $151.0 million. The Company's net debt to gross assets was 27.0%, its net debt to EBITDA - adjusted was 3.3x, and its interest coverage ratio was 10.3x. The Company's debt to gross assets, net of the sold but not yet settled ATM forward equity proceeds was 21.4% at December 31, 2017.
The Company did not settle any additional ATM forward equity shares in the fourth quarter in anticipation of the disposition proceeds it expects to receive in the first quarter of 2018. At year end, the Company had 4.8 million forward equity shares sold under its ATM that have not yet been settled. The shares were sold at a weighted average net price of $41.56, representing approximately $190 million in future funding for its capital commitments and can be settled at the Company's option through December 2018.
Approximately $488 million of the Company's $900 million in capital commitments remains to be funded with $426 million anticipated to be spent in 2018 and the remainder in 2019. The Company expects to meet these capital commitments with existing cash, debt capacity, proceeds from the anticipated community dispositions and settling its existing $190 million of ATM forward equity shares that have already been sold. After doing so, the Company's projected debt to gross assets at December 31, 2018 would be 26%, which is within management’s targeted leverage range of 25% to 30%. Please see the Company's financial supplement for a schedule of sources and uses of capital for all announced transactions as well as pro forma debt to gross asset ratios including the impact of funding the commitments.
The Company's short interest of approximately 9% is elevated due to the outstanding ATM forward equity shares. The 4.8 million outstanding ATM forward equity shares represent approximately 70% of the short interest.
In February 2018, the Company amended its revolving credit facility that was set to mature in the fourth quarter of 2018. The amended facility has a term of five years, maturing in 2023, and the revolver capacity was expanded by $100 million to $600 million.
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Market Supply and Demand
The 2018 supply and demand statistics for the Company's markets has been updated since the third quarter earnings release to 1) include the Hawai'i market as the Company's development in that market is now expected to deliver this summer, 2) update 2016 enrollment numbers for the last 15 of the Company's 47 markets that previously did not have final enrollment numbers available and 3) remove the communities the Company anticipates selling in 2018. Including these adjustments, the projected supply and enrollment growth in the Company's markets for 2018 is now 1.9% and 1.3%, respectively.
The anticipated gap for 2018 is consistent with the supply to enrollment gap EdR experienced in its markets over the previous five years as follows:
EdR Markets (% of enrollment): | 2013 | 2014 | 2015 | 2016 | 2017(1) | 2018 Est (2) | |||||||||||||
Projected new supply | 2.2 | % | 2.2 | % | 2.0 | % | 1.8 | % | 2.1 | % | 1.9 | % | |||||||
Projected enrollment growth | 1.3 | % | 1.4 | % | 1.5 | % | 1.5 | % | 1.4 | % | 1.3 | % | |||||||
0.9 | % | 0.8 | % | 0.5 | % | 0.3 | % | 0.7 | % | 0.6 | % | ||||||||
Same-community: | |||||||||||||||||||
Occupancy increase (decrease) | 3.0 | % | 2.0 | % | 0.4 | % | (1.1 | )% | (1.2 | )% | |||||||||
Rate increase | 2.0 | % | 2.0 | % | 3.4 | % | 3.4 | % | 3.0 | % | |||||||||
Total leasing revenue growth | 5.0 | % | 4.0 | % | 3.8 | % | 2.3 | % | 1.8 | % | 3.0 | % | (3) | ||||||
(1) Data includes the existing portfolio plus 2017 developments. The estimated enrollment growth is based on the 3-year enrollment CAGR through 2016 for the included communities. | |||||||||||||||||||
(2) Data includes the existing portfolio plus 2018 developments but excludes communities the Company anticipates selling in 2018. The estimated enrollment growth is based on the 3-year enrollment CAGR through 2016 for the included communities. | |||||||||||||||||||
(3) Represents the midpoint of 2018/2019 leasing guidance. | |||||||||||||||||||
The Company provides additional enrollment and supply information by market in its quarterly earnings supplement located at http://www.snl.com/irweblinkx/yearlypresentations.aspx?iid=4095382.
2018 Financial Guidance Summary
Based upon the Company’s current estimates, 2018 full year financial guidance is as follows:
Without Capital Transactions | With Capital Transactions | |||||||||||||||
Low | High | Low | High | |||||||||||||
Projected Earnings per Share/Unit – Diluted | $ | 0.56 | $ | 0.62 | $ | 0.58 | $ | 0.63 | ||||||||
Projected FFO per share/unit | $ | 1.83 | $ | 1.93 | $ | 1.75 | $ | 1.85 | ||||||||
Projected Core FFO per share/unit | $ | 1.89 | $ | 1.99 | $ | 1.81 | $ | 1.91 | ||||||||
Projected Shares/Units (in millions) | 76.4 | 77.9 | ||||||||||||||
Projected Debt to Gross Assets - 12/31/2018 | 36% | 26% | ||||||||||||||
Capital transactions include the settlement of 4.8 million ATM forward equity shares that have already been sold and the top end of the previously announced $150 million to $225 million of anticipated dispositions.
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The following compares the midpoint of 2018 Core FFO per share/unit guidance to results for 2017 (in millions, except per share/unit amounts):
Core FFO | Core FFO per Share/Unit | Weighted Average Shares/Units | Total Shares/Units Outstanding | |||||||||||
Full Year 2017 | $ | 141.5 | $ | 1.90 | 74.5 | 76.4 | ||||||||
Impact of difference in weighted average shares and shares outstanding at 12/31/2017 | — | (0.05 | ) | 1.9 | — | |||||||||
Increase in community NOI | 25.4 | 0.33 | — | — | ||||||||||
Decrease in third-party fee revenue | (6.2 | ) | (0.08 | ) | — | — | ||||||||
Decrease in general and administrative expense | 4.3 | 0.06 | — | — | ||||||||||
Increase in interest expense, net | (16.9 | ) | (0.22 | ) | — | — | ||||||||
All other, net | 0.2 | — | — | — | ||||||||||
Midpoint of 2018 Core FFO guidance without Capital Transactions | $ | 148.3 | $ | 1.94 | 76.4 | 76.4 | ||||||||
Decrease in NOI from asset dispositions | (10.4 | ) | (0.14 | ) | — | — | ||||||||
Net impact on interest expense and share count from anticipated dispositions and settling 4.8 million already sold ATM forward equity shares | 7.0 | 0.06 | 1.5 | 4.8 | ||||||||||
Midpoint of 2018 Core FFO Guidance with Capital Transactions | $ | 144.9 | $ | 1.86 | 77.9 | 81.2 | ||||||||
The midpoint of 2018 Core FFO per share guidance with capital transactions is $1.86, a $0.04 or 2.1% reduction from 2017. The primary reasons are (i) an $0.08 decrease in timing of third-party fee revenue and (ii) the combined $0.08 dilution from settling ATM forward equity shares and anticipated property dispositions to invest in active developments.
A reconciliation of 2018 GAAP net income guidance to 2018 FFO and Core FFO guidance is provided in the tables accompanying this release.
Guidance Assumptions
Same-Community:
Full year revenue growth | 0.8% to 1.8% | |
Full year operating expense | 3.0% to 4.0% | |
Full year NOI | (0.5)% to 0.5% | |
Leasing expectations for 2018/2019 lease-term revenue growth: | ||
Leasing same-community (financial same-community in 2019) | 2.0% to 4.0% | |
2018 financial same-community | 1.5% to 3.0% | |
Leasing same-community (financial same-community in 2019) represents the communities the Company has leased for the current and prior lease up, consistent with how leasing results have historically been reported. The difference between this and 2018 financial same-community relates primarily to the Company's 2017 acquisition and development communities, which have been leased for both lease terms but do not roll into same-communities for financial reporting purposes until January 2019.
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Developments
• | The University of Hawai'i development is accelerated from a 2019 delivery to summer 2018. |
• | While management believes the Company's Oklahoma State University development will deliver in 2018, guidance reflects no property level NOI from this community in 2018. |
• | Consistent with the Company's investment underwriting, guidance reflects a marginally lower opening occupancy on 2018 development deliveries than prior years due to stabilization occurring at a slower pace than historically. |
• | 2019 developments are assumed to be approximately $118 million, which includes the two announced ONE Plan developments at Mississippi State University and Lehigh University. |
• | In total, guidance includes approximately $900 million of known developments delivering in 2018 and 2019, with $488 million left to be funded by the Company’s balance sheet, $426 million of which is expected to be funded in 2018. |
• | The timing of actual development spend may vary significantly from the above amounts. |
Dispositions
Guidance assumes the disposition of six to seven assets in 2018 for $150 million to $225 million. Although there can be no assurance that any of these assets will be sold, or at the prices indicated, we believe the majority of these sales will close in the first quarter, with the remainder in the third quarter.
Capital Sources and Uses
The following reflects projected capital sources and uses included in the Company’s guidance for 2018 (in millions):
Capital Sources | ||||
Settle existing ATM forward equity shares - 4.8 million shares | $ | 190 | ||
Proceeds from dispositions | 225 | |||
Increase in debt | 11 | |||
$ | 426 | |||
Capital Uses | ||||
2018 Developments | $ | 372 | ||
2019 Developments | 54 | |||
$ | 426 | |||
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Balance Sheet Management
The Company’s balance sheet strategy is to maintain conservative current and future leverage metrics when factoring in its development pipeline and any acquisition commitments. The Company's debt to gross asset leverage target is 25% - 30%.
The following reflects estimated debt to gross assets at December 31, 2018, assuming:
No capital transactions | 36% | |
Settling the ATM forward equity shares | (5)% | |
Closing top end of disposition guidance | (5)% | |
With capital transactions | 26% | |
See pages 24-28 in the supplemental financial information for additional details on earnings guidance assumptions.
Webcast and Conference Call
EdR will host a conference call for investors and other interested parties beginning at 10 a.m. Eastern Standard Time on Tuesday, February 20, 2018. The call will be hosted by Randy Churchey, EdR's chairman and chief executive 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 Tuesday, February 20, 2018 through 11:59 p.m. Eastern Time on Tuesday, March 6, 2018. To access the replay, the domestic dial-in number is (844) 512-2921, the international dial-in number is (412) 317-6671, and the passcode is 13675625. The archive of the webcast will be available on the Company's Web site for a limited time.
About EdR
One of America's largest owners, developers and managers of collegiate housing, EdR (NYSE:EDR) is a self-administered and self-managed real estate investment trust that owns or manages 85 communities with more than 45,500 beds serving 53 universities in 26 states. EdR is a member of the Russell 2000 Index, the S&P MidCap 400 and the Morgan Stanley REIT indices. For details, please visit the Company's Web site at www.EdRtrust.com.
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Contact:
J. Drew Koester
Senior Vice President
Capital Markets and Investor Relations
(901) 259-2500
Bill Brewer
Executive Vice President and
Chief Financial Officer
(901) 259-2500
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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, except as required by law.
No Offer of Securities
Nothing in this press release shall constitute an offer to sell or the solicitation of an offer to buy any securities nor will there be any offer or sale of securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or other jurisdiction. Any offering of securities will be made only by means of an applicable prospectus.
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Non-GAAP Financial Measures
Funds from Operations (FFO)
As defined by the National Association of Real Estate Investment Trusts ("NAREIT"), FFO represents net
income (loss) (computed in accordance with U.S. generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from sales of collegiate housing assets and impairment write-downs of depreciable real estate plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are 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, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from collegiate housing asset 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.
We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999, April 2002 and by the October 2011 guidance described above), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties. We believe that net income is the most directly comparable GAAP measure to FFO available to stockholders and unitholders. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
The Company also uses core funds from operations, or Core FFO, as an operating performance measure. Core FFO available to stockholders and unitholders is defined as FFO adjusted to exclude the impact of straight-line adjustment for ground leases, gains/losses on extinguishment of debt, transaction costs and noncash fair value adjustments and 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 management uses Core FFO in the assessment of our operating performance and comparison to its industry peers and believes that Core FFO is a useful supplemental measure for the investing community to use in comparing the Company's results to other REITs as most REITs provide some form of adjusted or modified FFO.
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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 third-party management fees and expenses, third-party development consulting fees and expenses, depreciation, amortization, other operating expense related to noncash adjustments, 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 resident 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.
Debt to Gross Assets
Debt to gross assets is defined as total debt, excluding the unamortized deferred financing costs, divided by gross assets, or total assets excluding accumulated depreciation on real estate assets. We also refer to net debt to gross assets. Net debt is defined as total debt, excluding the unamortized deferred financing costs and less cash. We consider debt to gross assets and net debt to gross assets useful to an investor in evaluating our leverage and in assessing our capital structure, because it excludes noncash items such as accumulated depreciation and provides a more accurate depiction of our capital structure. Debt to gross assets and net debt to gross assets 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 GAAP net income 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 properties; (6) interest expense and interest income; (7) amortization of deferred financing costs; (8) income tax expense (benefit); (9) noncontrolling interests; (10) other operating expense related to noncash adjustments and (11) loss on extinguishment of debt. Management considers Adjusted EBITDA useful to an investor in evaluating and facilitating comparisons of the Company's operating performance between periods and between REITs by removing the impact of the Company's capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results.
Interest Coverage Ratio
Interest Coverage Ratio is defined as Adjusted EBITDA divided by interest expense. We consider the interest coverage ratio a useful metric for investors as it provides a widely-used measure of our ability to service our debt obligations, as well as compare leverage between REITs.
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EdR AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(Unaudited)
December 31, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Collegiate housing properties, net | $ | 2,425,031 | $ | 2,108,706 | ||||
Assets under development | 487,887 | 289,942 | ||||||
Cash and cash equivalents | 24,787 | 34,475 | ||||||
Restricted cash | 4,368 | 7,838 | ||||||
Other assets | 73,091 | 65,224 | ||||||
Total assets | $ | 3,015,164 | $ | 2,506,185 | ||||
Liabilities and equity | ||||||||
Liabilities: | ||||||||
Unsecured debt, net of unamortized deferred financing costs | 933,449 | 454,676 | ||||||
Mortgage and construction loans, net of unamortized deferred financing costs | — | 62,520 | ||||||
Accounts payable and accrued expenses | 162,434 | 127,872 | ||||||
Deferred revenue | 20,473 | 20,727 | ||||||
Total liabilities | 1,116,356 | 665,795 | ||||||
Commitments and contingencies | — | — | ||||||
Redeemable noncontrolling interests | 52,843 | 38,949 | ||||||
Equity: | ||||||||
EdR stockholders’ equity: | ||||||||
Common stock, $0.01 par value per share, 200,000,000 shares authorized, 75,779,932 and 73,075,455 shares issued and outstanding as of December 31, 2017 and 2016, respectively | 757 | 731 | ||||||
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Additional paid-in capital | 1,844,639 | 1,802,852 | ||||||
Retained earnings | — | — | ||||||
Accumulated other comprehensive loss | (660 | ) | (3,564 | ) | ||||
Total EdR stockholders’ equity | 1,844,736 | 1,800,019 | ||||||
Noncontrolling interests | 1,229 | 1,422 | ||||||
Total equity | 1,845,965 | 1,801,441 | ||||||
Total liabilities and equity | $ | 3,015,164 | $ | 2,506,185 | ||||
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EdR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Three months ended December 31, | |||||||
2017 | 2016 | ||||||
Revenues: | |||||||
Collegiate housing leasing revenue | $ | 91,786 | $ | 80,437 | |||
Third-party development consulting services | 1,063 | 636 | |||||
Third-party management services | 1,102 | 1,032 | |||||
Operating expense reimbursements | 1,915 | 2,119 | |||||
Total revenues | 95,866 | 84,224 | |||||
Operating expenses: | |||||||
Collegiate housing leasing operations | 32,067 | 27,811 | |||||
Development and management services | 3,253 | 2,706 | |||||
General and administrative | 2,717 | 2,422 | |||||
Development pursuit, acquisition costs and severance | 2,067 | 292 | |||||
Depreciation and amortization | 22,693 | 22,462 | |||||
Ground lease expense | 3,965 | 3,633 | |||||
Loss on impairment of collegiate housing properties | — | 2,500 | |||||
Other operating (income) expense(1) | (4,837 | ) | 2,146 | ||||
Reimbursable operating expenses | 1,915 | 2,119 | |||||
Total operating expenses | 63,840 | 66,091 | |||||
Operating income | 32,026 | 18,133 | |||||
Nonoperating (income) expenses: | |||||||
Interest expense | 4,894 | 3,345 | |||||
Amortization of deferred financing costs | 389 | 351 | |||||
Interest income | (32 | ) | (61 | ) | |||
Total nonoperating expenses | 5,251 | 3,635 | |||||
Income before equity in (losses) earnings of unconsolidated entities and income taxes | 26,775 | 14,498 | |||||
Equity in (losses) earnings of unconsolidated entities | (206 | ) | 289 | ||||
Income before income taxes | 26,569 | 14,787 | |||||
Less: Income tax expense | 1,532 | 460 | |||||
Net income | 25,037 | 14,327 | |||||
Less: Net (loss) income attributable to the noncontrolling interests | (341 | ) | 194 | ||||
Net income attributable to Education Realty Trust, Inc. | $ | 25,378 | $ | 14,133 | |||
Other comprehensive income: | |||||||
Gain on cash flow hedging derivatives | 1,824 | 4,748 | |||||
Comprehensive income attributable to Education Realty Trust, Inc. | $ | 27,202 | $ | 18,881 | |||
Earnings per share information: | |||||||
Net income attributable to Education Realty Trust, Inc. common stockholders per share – basic and diluted | $ | 0.32 | $ | 0.19 | |||
Weighted average share of common stock outstanding – basic | 76,204 | 73,357 | |||||
Weighted average share of common stock outstanding – diluted | 76,388 | 73,595 | |||||
(1) Included in other operating income (expense) for the period above are the changes in fair value of contingent consideration liabilities associated with two of our 2016 acquisitions. Also included in other operating income for the fourth quarter 2017 was a $4.8 million gain on the settlement of a dispute that arose with the seller of one of our acquired properties post-acquisition.
14
EdR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Year ended December 31, | |||||||
2017 | 2016 | ||||||
Revenues: | |||||||
Collegiate housing leasing revenue | $ | 313,727 | $ | 274,187 | |||
Third-party development consulting services | 5,256 | 2,364 | |||||
Third-party management services | 3,736 | 3,588 | |||||
Operating expense reimbursements | 8,347 | 8,829 | |||||
Total revenues | 331,066 | 288,968 | |||||
Operating expenses: | |||||||
Collegiate housing leasing operations | 128,358 | 111,378 | |||||
Development and management services | 14,147 | 10,671 | |||||
General and administrative | 11,441 | 10,413 | |||||
Development pursuit, acquisition costs and severance | 2,928 | 1,190 | |||||
Depreciation and amortization | 95,501 | 81,413 | |||||
Ground lease expense | 13,424 | 12,462 | |||||
Loss on impairment of collegiate housing properties | — | 2,500 | |||||
Other operating (income) expense(1) | (6,041 | ) | 1,046 | ||||
Reimbursable operating expenses | 8,347 | 8,829 | |||||
Total operating expenses | 268,105 | 239,902 | |||||
Operating income | 62,961 | 49,066 | |||||
Nonoperating (income) expenses: | |||||||
Interest expense | 15,268 | 15,454 | |||||
Amortization of deferred financing costs | 1,574 | 1,731 | |||||
Interest income | (98 | ) | (490 | ) | |||
Loss on extinguishment of debt | 22 | 10,611 | |||||
Total nonoperating expenses | 16,766 | 27,306 | |||||
Income before equity in losses of unconsolidated entities, income taxes and gain on sale of collegiate housing properties | 46,195 | 21,760 | |||||
Equity in losses of unconsolidated entities | (65 | ) | (328 | ) | |||
Income before income taxes and gain on sale of collegiate housing properties | 46,130 | 21,432 | |||||
Less: Income tax expense | 584 | 684 | |||||
Income before gain on sale of collegiate housing properties | 45,546 | 20,748 | |||||
Gain on sale of collegiate housing properties | 691 | 23,956 | |||||
Net income | 46,237 | 44,704 | |||||
Less: Net loss attributable to the noncontrolling interests | (1,203 | ) | (220 | ) | |||
Net income attributable to Education Realty Trust, Inc. | $ | 47,440 | $ | 44,924 | |||
Other comprehensive income: | |||||||
Gain on cash flow hedging derivatives | $ | 2,904 | $ | 1,911 | |||
Comprehensive income attributable to Education Realty Trust, Inc. | $ | 50,344 | $ | 46,835 | |||
Earnings per share information: | |||||||
Net income attributable to Education Realty Trust, Inc. common stockholders per share – basic and diluted | $ | 0.60 | $ | 0.65 | |||
Weighted average share of common stock outstanding – basic | 74,263 | 69,336 | |||||
Weighted average share of common stock outstanding – diluted | 74,465 | 69,600 | |||||
(1) Included in other operating income (expense) for the period above are the changes in fair value of contingent consideration liabilities associated with two of our 2016 acquisitions. Also included in other operating income for the year ended December 31, 2017 was a $4.8 million gain on the settlement of a dispute that arose with the seller of one of our acquired properties post-acquisition.
15
EdR AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO FFO AND CORE FFO
(Amounts in thousands, except per share/unit data)
(Unaudited)
Three months ended December 31, | Year ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income attributable to EdR | $ | 25,378 | $ | 14,133 | $ | 47,440 | $ | 44,924 | |||||||
Gain on sale of collegiate housing assets | — | — | (691 | ) | (23,956 | ) | |||||||||
Impairment losses | — | 2,500 | — | 2,500 | |||||||||||
Real estate related depreciation and amortization | 22,074 | 22,229 | 93,390 | 79,653 | |||||||||||
Equity portion of real estate depreciation and amortization on equity investees | 913 | 676 | 2,923 | 2,699 | |||||||||||
Noncontrolling interests | 34 | 154 | (309 | ) | 153 | ||||||||||
Funds from operations ("FFO") available to stockholders and unitholders | $ | 48,399 | $ | 39,692 | $ | 142,753 | $ | 105,973 | |||||||
FFO adjustments: | |||||||||||||||
Loss on extinguishment of debt | — | — | 22 | 10,611 | |||||||||||
Acquisition costs | 8 | 206 | 35 | 619 | |||||||||||
Change in fair value of contingent consideration liability and settlement(1) | (4,837 | ) | 2,146 | (6,041 | ) | 1,046 | |||||||||
Straight-line adjustment for ground leases (2) | 1,170 | 1,175 | 4,696 | 4,731 | |||||||||||
FFO adjustments | (3,659 | ) | 3,527 | (1,288 | ) | 17,007 | |||||||||
Core funds from operations ("Core FFO") available to stockholders and unitholders | $ | 44,740 | $ | 43,219 | $ | 141,465 | $ | 122,980 | |||||||
Earnings per share - diluted (3) | $ | 0.32 | $ | 0.19 | $ | 0.60 | $ | 0.65 | |||||||
FFO per weighted average share/unit (4) | $ | 0.63 | $ | 0.54 | $ | 1.92 | $ | 1.52 | |||||||
Core FFO per weighted average share/unit (4) | $ | 0.59 | $ | 0.59 | $ | 1.90 | $ | 1.77 | |||||||
Weighted average shares/units (4) | 76,388 | 73,595 | 74,465 | 69,600 | |||||||||||
(1) Included in this line item for the periods above are the changes in fair value of contingent consideration liabilities associated with two of our 2016 acquisitions. Also included for the fourth quarter 2017 was a $4.8 million gain on the settlement of a dispute that arose with the seller of one of our acquired properties post-acquisition. | |||||||||||||||
(2) This represents the straight-line rent expense adjustment required by GAAP related to ground leases. As the ground lease terms range from 40 to 99 years, the adjustment to straight-line these agreements becomes material to our operating results, distorting the economic results of the communities. | |||||||||||||||
(3) The numerator for earnings per share - diluted also includes $0.7 million and $2.7 million of accretion of redeemable noncontrolling interests for the three and twelve months ended December 31, 2017, respectively. | |||||||||||||||
(4) FFO and Core FFO per weighted average share/unit were computed using the weighted average of all shares and partnership units outstanding, regardless of their dilutive impact. | |||||||||||||||
16
EdR AND SUBSIDIARIES
2018 GUIDANCE – RECONCILIATION OF GAAP NET INCOME TO FFO and CORE FFO
(Amounts in thousands, except share/unit and per share/unit data)
(Unaudited)
Year ending December 31, 2018 | ||||||||||||||||
Without Capital Transactions | With Capital Transactions | |||||||||||||||
Low End | High End | Low End | High End | |||||||||||||
Net income attributable to EdR (1) | $ | 45,300 | $ | 49,200 | $ | 47,000 | $ | 51,400 | ||||||||
Real estate related depreciation and amortization | 94,500 | 98,500 | 89,200 | 93,200 | ||||||||||||
Equity portion of real estate depreciation and amortization on equity investees | 2,400 | 2,400 | 2,400 | 2,400 | ||||||||||||
Redeemable noncontrolling interests | (400 | ) | (400 | ) | (400 | ) | (400 | ) | ||||||||
Noncontrolling interest depreciation | (2,100 | ) | (2,100 | ) | (2,100 | ) | (2,100 | ) | ||||||||
Funds from operations ("FFO") available to stockholders and unitholders | 139,700 | 147,600 | 136,100 | 144,500 | ||||||||||||
FFO adjustments: | ||||||||||||||||
Straight-line adjustment for ground leases (2) | 4,600 | 4,600 | 4,600 | 4,600 | ||||||||||||
FFO adjustments | 4,600 | 4,600 | 4,600 | 4,600 | ||||||||||||
Core funds from operations ("Core FFO") available to stockholders and unitholders | $ | 144,300 | $ | 152,200 | $ | 140,700 | $ | 149,100 | ||||||||
Earnings per share – diluted (3) | $ | 0.56 | $ | 0.62 | $ | 0.58 | $ | 0.63 | ||||||||
FFO per weighted average share/unit (4) | $ | 1.83 | $ | 1.93 | $ | 1.75 | $ | 1.85 | ||||||||
Core FFO per weighted average share/unit (4) | $ | 1.89 | $ | 1.99 | $ | 1.81 | $ | 1.91 | ||||||||
Weighted average shares/units (4) | 76,400 | 76,400 | 77,900 | 77,900 | ||||||||||||
Notes: | ||||||||||||||||
(1) Does not include any gain or loss on dispositions included in 2018 guidance. | ||||||||||||||||
(2) This represents the straight-line rent expense adjustment required by GAAP related to ground leases. As the ground lease terms range from 40 to 99 years, the adjustment to straight-line these agreements becomes material to our operating results, distorting the economic results of the communities. | ||||||||||||||||
(3) The numerator for earnings per share - diluted also includes $2.2 million of accretion of redeemable noncontrolling interests for the year ended December 31, 2018. | ||||||||||||||||
(4) FFO and Core FFO per weighted average share/unit were computed using the weighted average of all shares and partnership units outstanding, regardless of their dilutive impact. | ||||||||||||||||
17
EdR AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
The following is a reconciliation of the Company's GAAP operating income to NOI for the three months and year ended December 31, 2017 and 2016 (in thousands):
For the three months ended December 31, | For the year ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating income | $ | 32,026 | $ | 18,133 | $ | 62,961 | $ | 49,066 | |||||||
Less: Third-party development services revenue | (1,063 | ) | (636 | ) | (5,256 | ) | (2,364 | ) | |||||||
Less: Third-party management services revenue | (1,102 | ) | (1,032 | ) | (3,736 | ) | (3,588 | ) | |||||||
Less: Other operating (income) expense | (4,837 | ) | 2,146 | (6,041 | ) | 1,046 | |||||||||
Plus: Development and management services expenses | 3,253 | 2,706 | 14,147 | 10,671 | |||||||||||
Plus: General and administrative expenses, development pursuit, acquisition costs and severance | 4,784 | 2,714 | 14,369 | 11,603 | |||||||||||
Plus: Ground leases | 3,965 | 3,633 | 13,424 | 12,462 | |||||||||||
Plus: Impairment loss on collegiate housing properties | — | 2,500 | — | 2,500 | |||||||||||
Plus: Depreciation and amortization | 22,693 | 22,462 | 95,501 | 81,413 | |||||||||||
NOI | $ | 59,719 | $ | 52,626 | $ | 185,369 | $ | 162,809 | |||||||
The following is a reconciliation of the Company's GAAP net income to Adjusted EBITDA for the years ended December 31, 2017 and 2016 (in thousands):
For the year ended December 31, | ||||||||
2017 | 2016 | |||||||
Net income attributable to common stockholders | $ | 47,440 | $ | 44,924 | ||||
Straight line adjustment for ground leases | 4,696 | 4,731 | ||||||
Acquisition costs | 35 | 619 | ||||||
Depreciation and amortization | 95,501 | 81,413 | ||||||
Loss on impairment of collegiate housing assets | — | 2,500 | ||||||
Gain on sale of collegiate housing assets | (691 | ) | (23,956 | ) | ||||
Interest expense | 15,268 | 15,454 | ||||||
Amortization of deferred financing costs | 1,574 | 1,731 | ||||||
Interest income | (98 | ) | (490 | ) | ||||
Loss on extinguishment of debt | 22 | 10,611 | ||||||
Income tax expense | 584 | 684 | ||||||
Other operating (income) expense(1) | (6,041 | ) | 1,046 | |||||
Noncontrolling interests | (1,203 | ) | (220 | ) | ||||
Adjusted EBITDA | $ | 157,087 | $ | 139,047 | ||||
Annualize acquisitions, developments and dispositions (2) | 8,002 | 9,938 | ||||||
Pro Forma Adjusted EBITDA | $ | 165,089 | $ | 148,985 | ||||
(1) Included in other operating income (expense) for the periods above are the changes in fair value of contingent consideration liabilities associated with two of our 2016 acquisitions. Also included in other operating income in 2017 was a $4.8 million gain on the settlement of a dispute that arose with the seller of one of our acquired properties post-acquisition. | ||||||||
(2) Pro forma adjustment to reflect all acquisitions, development deliveries and dispositions as if such transactions had occurred on the first day of the period presented. | ||||||||
18
EdR AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
The following is a reconciliation of our GAAP total debt to gross assets as of December 31, 2017 and 2016 (dollars in thousands):
December 31, 2017 | December 31, 2016 | |||||||
Unsecured debt, excluding unamortized deferred financing costs of $3,051 and $2,824 as of December 31, 2017 and 2016, respectively | $ | 936,500 | $ | 457,500 | ||||
Mortgage and construction loans, excluding unamortized deferred financing costs of $56 as of December 31, 2016 | — | 62,576 | ||||||
Total debt, excluding unamortized deferred financing costs | 936,500 | 520,076 | ||||||
Less: Cash | 24,787 | 34,475 | ||||||
Net debt | $ | 911,713 | $ | 485,601 | ||||
Total assets | $ | 3,015,164 | $ | 2,506,185 | ||||
Accumulated depreciation(1) | 385,118 | 311,069 | ||||||
Gross assets | $ | 3,400,282 | 2,817,254 | |||||
Debt to gross assets | 27.5 | % | 18.5 | % | ||||
Net debt to gross assets(2) | 27.0 | % | 17.5 | % | ||||
Interest coverage (TTM)(3) | 10.3 | x | 9.0 | x | ||||
Net debt to EBITDA - Adjusted (TTM)(4) | 3.3 | x | 1.7 | x | ||||
Net debt | $ | 911,713 | $ | 485,601 | ||||
Less: Undrawn forward equity proceeds | 190,215 | 288,650 | ||||||
Debt, net of cash and undrawn forward equity proceeds | $ | 721,498 | $ | 196,951 | ||||
Gross assets | $ | 3,400,282 | $ | 2,817,254 | ||||
Less: Cash | 24,787 | 34,475 | ||||||
Gross assets(5) | $ | 3,375,495 | $ | 2,782,779 | ||||
Debt, net of cash and undrawn forward equity proceeds to gross assets(5) | 21.4 | % | 7.1 | % | ||||
(1) Represents accumulated depreciation on real estate assets. | ||||||||
(2) Gross assets used in the net debt to gross assets calculation excludes $24.8 million cash on hand at December 31, 2017. | ||||||||
(3) Equals Adjusted EBITDA of $157.1 million divided by interest expense of $15.3 million. See page 18 for reconciliation to Adjusted EBITDA. | ||||||||
(4) Net Debt to EBITDA - Adjusted is calculated to normalize the impact of non-producing construction debt. In the calculation, Net Debt is total debt (excluding the unamortized deferred financing costs) less cash and excludes non income-producing debt related to assets under development at time of calculation. EBITDA is Proforma Adjusted EBITDA, which includes proforma adjustments to reflect all acquisitions, development deliveries and dispositions as if such had occurred at the beginning of the 12 month period being presented. | ||||||||
(5) Gross assets used in the debt, net of cash and undrawn forward equity proceeds calculation excludes accumulated depreciation of $385.1 million and cash of $24.8 million at December 31, 2017. | ||||||||
19