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spk00: Good day and welcome to the American Campus Community's Q1 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question from the queue, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Ryan Dennison, Senior Vice President of Capital Markets and Investor Relations for American Campus Communities. Please go ahead.
spk01: Thank you. Good morning and thank you for joining the American Campus Communities 2021 First Quarter Conference Call. The press release was furnished on Form 8K 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. Also posted on the company website in the investor relations section, you will find an earnings materials package which includes both the press release and a supplemental financial package. We are 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 fact 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 and Litigation Reform Act of 1995. Although the company believes the expectations reflected in any forward-looking statement 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, our Chief Executive Officer, Bill Bayless, will be providing our opening comments today. He's joined by the following members of senior management for the call. Jim Hopke, President. Jennifer Beas, Chief Operating Officer. William Talbot, Chief Investment Officer. Daniel Perry, Chief Financial Officer. Kim Voss, Chief Accounting Officer. And Jamie Wilhelm, EVP of Public-Private Partnerships. With that, I'll turn the call over to Bill for his remarks.
spk13: Bill? Thank you, Ryan. Good morning, and thank all of you for joining us as we discuss our 2021 Q1 results and evolving operating environment. As we commented last quarter, 2021 will be a year of transition on the path back to normalcy. And as overviewed in our release last night, we're off to a good start. The results for the quarter exceeded our expectations at the property level and for the company overall, with NOI and earnings per share beating our projections in Q1. And operationally, we continued to see stability this quarter. Collection rates for the first quarter were 97.3%, consistent with the fourth quarter of 2020. Requests for assistance under our resident hardship program continued to decrease. totaling only $750,000 for the quarter. Student requests for refunds at on-campus communities also continue to decrease, with refunds only being provided at one university totaling a net refund of just $1.3 million this quarter. We expect the need for refunds to continue to decline through the remainder of the current academic year and do not expect refunds to continue into the new academic year this fall. Increased spring leasing and less seasonal attrition led to the lowest reduction in fall to spring occupancy that we have seen in recent years, another positive sign of improving consumer sentiment. We're also pleased with our ability to continue to control operating expense growth, despite the impacts this quarter of the extreme ice storms in February, which resulted in over $800,000 net of insurance proceeds in repairs and maintenance costs. and increased utility expenses in Texas, Oklahoma, and other affected states. Turning to pre-leasing for the 2021-22 academic year, as we mentioned last quarter, and consistent with what has been reported by our private peers and in third-party market research, pre-leasing across the industry continues to lag behind the traditional pre-COVID pace. However, as we anticipated, we have begun to see significant acceleration in weekly pre-leasing velocity compared to the prior year, now that we are into the leasing period when activity slowed dramatically early in the pandemic last year. Since March 12th, our weekly velocity of applications, renewals, and new leases are running approximately two and a half times the same period prior year. With a significant amount of leasing left to do before the next academic year begins, we'll continue to utilize our proprietary LAMS platform in an attempt to maximize rental revenue. On our next earnings call in July, we should be in a position to disclose a more meaningful leasing comparison to the prior year, and at that time give an early indication as to where our final occupancy may be. While we remain cautiously optimistic that we will experience increased occupancy levels for fall of 2021 over the prior year, We continue to believe that we will not fully return to historic occupancy levels this fall, and at this time, the range of final fall occupancy and overall financial outcomes is still too wide for us to provide full-year earnings guidance with a reasonable and useful range. As such, at this time, we're providing guidance for the next quarter. We do want to thank the analyst community. for their efforts since our request on last quarter's call to better incorporate the seasonality of our business into their quarterly estimates, despite what is obviously a very difficult environment in which to project earnings. With regard to our Disney College program development, as some of you may be aware, on their last earnings call, Disney CEO Bob Chapek commented that they have been very pleased with future park bookings. And at their recent annual shareholder meeting, he conveyed that the Disney College program is a tremendous asset and that they are hopeful that the program will be back in business by the end of the year. Based on these public comments and our ongoing conversation with Walt Disney World Management, we now believe that once the college program is reinstated, that the ramp-up in occupancy may well occur at a pace that ultimately allows us to meet our targeted stabilized yield of 6.8% by May of 2023, as originally anticipated prior to the COVID pandemic. We will, of course, provide additional updates as Disney plans for resumption of the program continue to develop. Turning to on-campus P3 opportunities, We are seeing early signs of university administrations beginning to focus their efforts on the future modernization of on-campus housing post-COVID. During the first quarter, we were awarded a new project to renovate Kelly Hall, a 1960s era community bath residence hall located at Drexel University. And we commenced construction on another third party project at Concordia University. We continue to believe that both ACE and third-party on-campus development opportunities may well be greater in a post-COVID environment as universities prioritize their limited capital on academic and research infrastructure and as older community bath residence halls are taken out of service given the negative consumer sentiment and economic impacts of de-densification during the COVID pandemic. I'd like to congratulate the ACC team for two National Development Awards this quarter. First, our Leadership in Sustainable Development was recognized by the National Association of Home Builders with the Pillar of the Industry Award for the Best Green Market Rate Multifamily Community for our development of Plaza Verde at UC Irvine. This was not a student housing specific award, but rather was selected from among all multifamily developments nationally. Also, in the student housing category, the academic and residential complex that we developed on the campus of the University of Illinois at Chicago received the Pillar of the Industry Award for the best on-campus student housing community. Lastly, I'm proud to announce that we recently published our 2020 ESG report, which can be found at esg.americancampus.com. We have always attempted to positively impact the lives of our residents. from fostering academic achievement to nurturing health and wellness. In 2020, we took great care in making our communities a haven of well-being during these challenging times. As outlined in the report, ACC earned a LEED Platinum certification for Lightview at Northeastern University in Boston. This is the company's 38th project that has earned or is tracking LEED certification. In addition, The company completed its first greenhouse gas emissions inventory to inform future target setting, and we entered into renewable energy contracts at six communities for a projected 11.4 million kilowatts annually. Additionally, the company published employee demographic data demonstrating our commitment to diversity and inclusion, with over half of our team members being female and over half of our team members being minorities. We're very proud of our efforts to bring value to all stakeholders and look forward to what the future holds for our company. With that, I'd like to turn it back over to the operator to start the question and answer portion of the call.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question from the queue, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Derek Johnston with Busha Bank. Please go ahead.
spk05: Hi, everybody. How are you doing? Thank you. Are any of your colleges or universities requiring the vaccine? And do you see this as an enrollment hindrance? Do you worry about a broadening of a vaccine mandate for students? And then as part of this question, lastly, are these vaccination requirements being driven by student wishes or instructors, professors, and staff?
spk13: Yes. Thank you, Derek. Currently, only two of our 64 universities are requiring a vaccine. It's important to note, we do think you'll see more schools follow that trend. The way that it is being done is in the context of students needing a vaccine to attend classes in person on campus. And so when we look at what occurred last year, where, you know, in many of our universities, no students were able to attend classes at all, but yet still 90% came back. And so even with schools mandating a vaccine to attend classes, we don't think that as a whole, it will be a negative impact with regards to it's still going to be a much better situation than we had going in the last fall. And so, again, we would expect it to be not anything to the detriment of where we are launching from this year. We do think that most institutions that are having those conversations, it is being driven by making their faculty comfortable in terms of being able to feel comfortable coming into the classroom. We see more of that than we do from a student mandate with regard to it.
spk05: Thank you. That's very, very helpful. Given the growth in application rates nationwide, is there a potential upside to growth in admissions? And do you think it's taking students a little longer to decide where to attend, given that most students are applying to numerous or more universities than historically? And are the elevated applications and COVID possibly delaying university offers?
spk13: Yeah, and certainly when we look at Common App, which is the company that helps students apply to universities, there is indeed an uptick in applications this year. When you look at unique applications in terms of the actual physical number of applicants, they're up nationally about 2.3%, which is a good growth number. Good for us, and when you look at where the larger increases are in the increase in applications, Certainly public large institutions with enrollments above 20,000 are doing very well. Applications there are up 13% to 15%. And so in the universe where we operate, we do see double-digit submission of application. Certainly the increase in applications is from an administrative perspective, there's more processing that the universities need to do. And so while we do see them operating on their normal timeline, and typically by the end of May is when you see all the application and acceptances play out, we don't see a slowdown in that process, but there is a little more processing for schools to do. How it all plays out at our particular universities, ultimately we have to wait until the fall when those final enrollment numbers come in. But the trending is positive, both in a small uptick of the 2.3%, and a double-digit submission of applications at our universities. When you look at where students are applying, in a pre-COVID environment, they were typically applying at 5.3 universities per student, and now it's 5.8. So it is a small uptick in terms of the number of institutions they're applying to, an average of about one more, if you round up.
spk05: Okay, got it. And just one last one, if I may. What are investors missing? I mean, why do you think ACC shares have significantly lagged the broader multifamily REITs year to date? I mean, especially as your company booked the bulk of the pandemic pain up front and in real time versus apartment REITs where it likely takes years to get back to pre-COVID earnings power.
spk13: First, I think that, you know, just when we look at the initial impacts on COVID that occurred last year, I think there was more concern and fear around student housing than multifamily at the beginning. When we saw universities starting with Harvard taking very significant draconian actions, closing the campuses, when we didn't know what COVID yet was. And so certainly I think that the initial impacts in terms of concern to our sector were greater than multifamily. Certainly I think that we have over time now demonstrated, you know, the long-term thesis of student housing has always been the stability of cash flows. and the fact that we are more resilient in times of macroeconomic uncertainty. And I think we started to build that story back and showing the reality of it in the context of the progress that was made this fall in terms of the 90.3% occupancy, and more importantly, a return in the payment structure and collection rates going back up to that 97, 98% showing that students and parents can recapitalize the funding of their education in economic hard times with guaranteed student loans and grants and the like. And so, you know, we think the market is seeing firsthand a demonstration of the resiliency of the sector. There, you know, we've got to prove out this year's lease up. And that's, you know, we're focused right now, we're chopping wood in getting back on that road to normalcy and returning to the sector. And I do think there's going to be some geographic variations as we see the reopenings in university systems across the country and on the coast as we build that back. And so, I don't know that the market is per se missing anything, just in terms of watching the demonstration of the long-term thesis of our sector being proven out in one of the most unique circumstances we faced as a company in an industry.
spk05: Thank you, Bill.
spk00: Our next question comes from Neil Malkin with Capital One. Please go ahead.
spk08: Hey, everyone. Good morning. Nice quarter, nice start to the year. You know, first, kind of a housekeeping. In terms of like Arizona, Texas, Florida, like the states with your largest exposures, do most of those schools, have they announced or do you expect them to announce a plan or, you know, I guess formula for a full-time in-person curriculum in the fall in terms of just, you know, again, learning implementation as well as a COVID protocol?
spk13: Yeah, those three states in particular have done very well even through this first year in terms of their models of education delivery and their policies on campus. And continue to know that the good news is when you look at all of the data of all the markets that we're operating in is that all state systems are making positive statements toward a return toward in-person activities. Certainly those three where we have the highest concentration are already states and systems where we have seen more open policies as it relates to in-person activities.
spk08: Yeah, okay. Makes sense. Then in terms of your, I believe it's Growth 2030, if I remember correctly, your initiatives with joint ventures and growth outside of the normal business lines, I suppose you could say. Any update there? I mean, I know things have gotten a little bit better recently, you know, since sort of that was announced. But, you know, do you think that you're going to have more to announce there? Are you in talks? Have you potentially established, you know, partners you're going to announce something with? Any updates there would be great.
spk13: Yeah, no, and we certainly continue that process. As we talked about, we had engaged a consultant later in their brokerage firm later in last year. We've moved that process along. We're into the final stages of selection. We're very pleased with the interest and the amount of capital that is out there that is entering such a program. As I mentioned previously, the entire industry is in the focus right now of returning our values as we move through this fall's lease up. And so, you know, as we get closer to the transactionary environment, which we think in Q4 of this year and Q1 of next year, we'll be in a position to talk more about that and bring finality to it.
spk08: Okay. Thank you guys very much, and good quarter.
spk10: Thank you.
spk00: Our next question comes from Nick Joseph with Citi. Please go ahead.
spk04: Thanks. Bill, I appreciate the commentary on pre-leasing and understand the uncertainty still there. But just in general, why couldn't occupancy come back to fall 2019 levels this year, just given the application trends we've talked about? You know, is it in-person enrollment or a need for kind of continued social distancing or something else that could hold back occupancy versus that long-term average?
spk13: Nick, we talked a lot about this at the investor conference that you all put on in that, you know, it's really on the margins. You know, just for everyone on the call, think about your circle of friends and acquaintances, you know, the 20 to 30 families that you interact with. And then, you know, how many of those families are 100% returning to normalcy in all their decision makings? There's always that, you know, on the margins, two to three that are going to continue to have a consumer behavior that's different. You know, last year we had 9.3 out of 10 students that came back. This year is going to be 9.5, 9.6. I mean, it's really that on the margins. The other thing that we, when you look at our performance historically over the years, and one of the things that we always talk about is the spread of occupancy where we outperform the rest of the industry in the Axial Metrics 175. And a lot of that benefit that we bring to full maximization of revenue in our portfolio, we always talk about how we manage the wait list and no-show process. And, you know, to some degree, filling student housing beds in the fall is like running an airline and filling those, maximizing the seats in that process. And when you're in that overfill and overbook situation is where we really utilize our proprietary systems to fill every last bed, do every last roommate match, and to efficiently work that process. And so the maximum benefit that we bring is when you're in an oversold situation in the majority of your markets. And so when you look at a normal year, you know, fall of 2019, we had 93 assets that were over 98%, 76 that were virtually 100% full, where we were able to nurture that process to maximize. You know, you look in the COVID environment, we only had 46 assets that were 98% and above. And so you have a little less opportunity across the portfolio geographically across the entire nation to have that type of outperformance. And so when you look at consumer behavior on the margins, and the ability to fully take advantage of our systems in a normal situation of overflow, we think that's the reason we probably won't see a full return to normalcy.
spk04: Thanks. That's very helpful.
spk13: This fall. This fall. Right.
spk04: And then, given more clarity on the Disney College program as the Disney phases deliver this year, how are you thinking about leasing those in the open market versus waiting for the program to resume?
spk13: Yeah, we're in discussions with Disney on that right now as they advance their plans and thinking about the reinstatement of the college program. As we mentioned in my comments, and certainly Mr. Chapek, you know, at their annual meeting, talking about what the Disney College program means to them and that they hope it will be reinstated this year. In the internal conversation that we have with them, we do believe that, and I mentioned this also, as the reinstatement takes place, which, you know, as Mr. Chapek said, they hope will be by the end of this year, that the potential for the ramp-up of occupancy may more emulate closer to our original pro forma as we're bringing phases back on to where we now believe that we may indeed be able to hit the stabilized yield of 6.8 ultimately by May of 2023. Between now and that point in time, while the reinstatement is still in question as to exactly when it will occur, once it does, it may ramp up more in line with what our original expectations were. And so certainly because of that, while we've leased, you know, I think we said 148 beds to date at the time of the release, we are, because those leases are typically 12 months and would extend into the period in which Mr. Chapek has said the college program will come back, we are monitoring that to make sure we make the right decision that we're ready for the higher revenue generating beds to be available to the college program.
spk04: Excellent.
spk00: Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
spk12: Hey, good morning. You guys seem to be in pretty high spirits today, so that's a good thing. So two questions here. One, freshmen were the laggards last year. I think they were 80% pre-lease. Do you have any sense, Bill, of how the freshmen are doing this year? Because that seems to be you know, sort of to Nick's question, that seems to be the real variable in getting back to normalcy.
spk13: Yeah. And Alex, when you say first-year students, are you referencing the ones coming in from high school this year or the ones that came in last year continuing on with leasing?
spk12: No, no, no. The new to school. It was because last year, Bill, it was the kids who were first going to school who were the ones hesitant to come back. He had actually lived on campus. So trying to gauge that same group, you know, the people who are going to school for the first time.
spk13: Yeah, no, and this is where we're, again, all of our preliminary indications are positive, but we continue cautious optimism as it relates to the ultimate outcomes. We continue to see good velocity among that group and all others, and as we mentioned earlier, We're now at about two and a half times weekly activity of what we had in the prior year. And so certainly we did see a slower pace of decision making toward housing initially in the fall and over the holiday break period. But we have seen that acceleration continue. So they are indeed making decisions a little later. You know, when you look at prior years, people that entered the market, the sense of urgency that existed to retain your housing For that particular group coming in, they never experienced that. And so their decision-making is just more on a comfortable pace of, oh, now it's time for me to do this. We always, you know, attempt to create that sense of urgency. In some markets, we continue to have that sense of urgency, but it has been a slower decision-making process. We have seen with that two and a times velocity, and this is where, you know, I mentioned, hopefully by the time we get on the call next quarter, we'll be able to give you a real comparison of this year to prior year that will enable us to start to have a feeling or a projection of where we're going to end up. But with that particular group of freshmen and as well as sophomores and juniors, we now see a velocity that two and a half times trending by the end of June, July, we should be at a point we should be able to have some indications as to how far we're exceeding last fall. And that goes across the board. As it relates to new incoming first year students, There's two positive things. One, the common app data that we mentioned in terms of an increase in applications of first-time students. And secondly, and probably more importantly in our partnerships, is colleges and universities returning to their housing expectations and requirements that they had waived during COVID, which should be the bolster in that particular category.
spk12: Okay, perfect, Bill. So that leads into my second question. From across your portfolio, especially as you comment about the geographic differences and returning to normalcy, what are you seeing from the schools as far as full restoration of sports, extracurriculars, allowing fraternities and sororities to rush? Basically, how much are you seeing schools go back to full operations, or is your view that maybe some of your portfolio will be full operations, some will be sort of limited, and we're just trying to create get a sense for how much the schools are doing on their part to try and really restore the fun college experience that the whole time kids go to school.
spk13: The most important policy we're seeing first is housing, and the schools are going to a restoration of normal housing activity and policy. Secondly, when you look at major athletic events, and I do think it was a pretty successful year overall for collegiate athletics from where we started at the beginning of the pandemic to what we saw in the completion of your major – athletics, especially with March Madness just having finished up and having a successful college football season where they actually crowned the champion. Some schools have announced full occupancy at sporting events. And so we have seen some begin to go all the way back to normalcy. Others we're seeing that are now staging that coming in line. But everything is positive movement more toward normalcy. This is where you may see some of the vaccine requirement help universities put these back into action. And so it's still somewhat in flux geographically. The good news is every announcement that has been made has been positive, whether it's in Texas, Florida, or California and Massachusetts. All announcements have been incrementally positive in moving back more toward in-person activities of all kind versus where they were. Okay, thanks, though.
spk00: Our next question comes from Austin Wierschmidt with KeyBank. Please go ahead.
spk02: Hey, good morning, everybody. Bill, to one of those last points, could you just put a finer point on what percent of your schools have reinstated sort of the on-campus housing mandate for first-year students?
spk13: All that we are in formal partnership with, are going back to their normal expectations and requirements. And so within our portfolio, at this moment in time, barring any changes, we have seen 100% that they're going back.
spk02: Got it. That's helpful. Thank you. And then as far as DCP, you discussed the potential to reach the underwritten yield by May 2023, which I think is when the final kind of 10th phase is delivered. But At what point do you think you could achieve the targeted yield on, you know, those phases one through five that deliver by, you know, the end of this year to the extent that the program is reinstituted later this year?
spk13: Yeah, we don't have clarity at this point in time on that. And, again, certainly looking at Mr. Chapek's comments, we think that by the end of this year we can begin to see the reinstatement. What that ramp-up is through 22 and how it may hit performance is just too soon for us to have clarity on. into being able to convey to you what that might be.
spk02: Got it. And then just the last one for me on the balance sheet and sort of leverage. We've seen it, you know, tick higher. But as we start to lap some of the comps and refunds of last year, how do you see that, you know, rationing down? And how do you plan to manage that as, you know, new development opportunities start to emerge for, you know, maybe 2023 and beyond?
spk10: Yeah, Austin, this is Daniel. You know, first, just on the normal recovery in those leverage ratios, you know, we continue to lay out, you know, what we believe our pro forma leverage ratios will be as we fund out the development pipeline, the current development pipeline, which currently all that is remaining is the Disney project. You know, throughout 2022, you know, into the fall of 22 is when we actually expect to see that full recovery in EBITDA to bring it back down to the pre-COVID levels, which at this time, you know, if you were to eliminate the negative impacts of COVID, we'd be around a seven times, low sevens debt to EBITDA. But with the capital recycling and or, you know, other types of equity type capital raises that we lay out in that $177 to $377 million range between now and 2023. That would bring us on down to the low sixes, high fives that we planned. So, you know, we don't have, you know, we're willing to be patient and allow that recovery in EBITDA to occur and to execute on attractive cost of capital transactions that will move that debt-to-debt and debt-to-assets ratio back into our targeted ranges and not do something that overly dilutes the NAV of the company just to get there more quickly.
spk02: Got it.
spk10: Appreciate the time. Thank you.
spk12: Thank you.
spk00: Our next question comes from Anthony Piloni with J.P. Morgan. Please go ahead.
spk11: Okay, thanks. Good morning. um bill just wondering if you can walk us through your view on when the the core noi the company gets back to to 2019 levels i'm just trying to size up like you've actually had some rent growth even if you have some occupancy slippage so just trying to get a sense maybe as we look past 2021 as a transitional year yeah we we certainly we we certainly believe as we get the fall of 22
spk13: that we believe will be very close to a complete return to normalcy. And by that time, with some, you know, hopefully rent growth and revenue growth in that area, we'll certainly be back to the pre-COVID numbers. Again, it's just too soon for us in terms of being able to build in a reliable expectation for this fall through the first three quarters of 2022 that are relying upon this lease up to be able to have full clarity. But certainly, as we think about the lease up in the fall of 2022, And where the university policies have been and what we've seen in consumer behavior, we do think by that time it is reasonable to expect that we should be in that position.
spk11: Do you need full occupancy to come back because you've had some rent growth over the last few years?
spk13: No, and obviously it's the combination of rent and occupancy to get to that number. We will always utilize the LAMS program to do that. We have mentioned that, you know, the on-campus beds where we had to vacancy this fall are at a higher rate, so we should get an average revenue per bed uptick from that as you see the recovery. And so certainly the combination of the two, but, you know, to granularly say how much is going to come from each one, we can't do it this time, but certainly I think by fall of 22 we should be there.
spk11: Okay. And then just on the supply side, can you comment on – what the supply picture looks like for 21, 22 in your markets, and also whether there's, whether developers are starting new projects and there's capital available for that right now.
spk13: Yeah, let me let William Talbot answer that question. William, go ahead.
spk09: Yeah, so, you know, as we've talked about in the past couple calls, for fall 21, we're seeing a slight decrease in supply. About 1.3% is where that ended up at the end of the day. And that's coming off a year where we saw a 20% decline of supply. So continue to see that decrease in supply. And, you know, it's really driven by, you know, most developers are focusing on those pedestrian sites and the tier one major markets. And as you all know, if you've been to college towns, those are typically very difficult sites, require assemblage, difficult entitlement environments, typically are going up. So higher construction costs, certainly in a more difficult construction environment. So Those barriers to entry that are naturally in close to universities is what's really constricting that development we're seeing in our market. Okay, thank you.
spk00: Our next question comes from Eric Knoll with Evercore ISI. Please go ahead.
spk06: Good morning, everyone. I guess, Bill or Daniel, can you provide an update on what you're seeing as it relates to the summer camps and the conference businesses? I think, Daniel, you've talked about this sort of $4.5 million in revenue kind of split between the second and third quarter, kind of based on kind of what you're seeing on the ground. How should we think about that segment over the next two quarters?
spk10: Yeah, Samir, you're right. In a normal year, we had commented that we – typically produce about four and a half million dollars of summer camp and conference business. And as we discussed, you know, obviously that went away last year when we were in the middle of the early part of COVID. You know, schools have started to think about that, but honestly, you know, with the real goal in mind being keep an eye on the ball for return this fall, and making sure that they don't do anything to derail that. We don't expect really much of any this summer. We do think that that will return in the summer of 2022. If there is any this year, we expect it to be very minimal and not a big dial mover in terms of earnings.
spk06: Got it. Thanks for that. And I guess my second one is just from a modeling perspective. I know you've talked about expense growth being in the high single digits, especially next quarter and even maybe into the third quarter. How should we think about maybe the items within expenses, whether it's GNA, utilities, payroll, kind of in the broader context of that high single-digit growth?
spk10: Yeah, I mean, you know, if you think back to, or if you were to go back and look at expenses during the midst of COVID, all of those controllable items, so you know, excluding insurance and property taxes, you know, we had significant savings across the board, you know, honestly, in the second and third quarter due to just a lot of activities ceasing. And, and so We would expect in the controllable areas to see significant growth pretty much across the board as we return activities to normal levels. We are continuing to deploy a lot of asset management initiatives across the portfolio that will help keep in our utilities expenses, but you're going to see or that higher growth level just because of the absolute savings we had due to the cease activity in the second and third quarter, and then start to maybe normalize a little bit into Q4. You know, I'll remind you, when we talked on last quarter's call, our expenses, when we looked at our internal budgeting for this year, overall, were pretty much in line with what we had budgeted for 2020 pre-COVID. And that's with $2 million to $3 million of anticipated spend on additional COVID cleaning costs. And then, of course, normal increases that are uncontrollable in property taxes, really significant increases in insurance, as you're hearing from a lot of operators, just due to the insurance market we're all dealing with. So even despite those increased costs, to be able to come in in line with where we were expecting going into 2020, we've really taken a lot of, you know, benefit from the efficiencies we learned during COVID and are bringing those forward into the more normal operating environment we're in right now.
spk06: Okay, thanks. That's it for me.
spk00: Our next question comes from John Polosky with Green Street. Please go ahead.
spk15: Hey, thanks for the time. William, one follow-up on the supply question. In terms of the shadow supply market post-COVID, do you expect any meaningful shift, either higher or lower, from kind of shadow supply, perhaps apartments repurposed into the traditional apartment market?
spk09: No, really don't. I mean, I think the majority of our university markets are in these smaller college towns that don't have that shadow multifamily supply in the traditional sense that's catering to the conventional multifamily renters. So in the majority of our university markets, you don't have that flex. And then when you look where, you know, take, for example, a market where we do have that, Austin, Texas, I mean, the multifamily market continues to be on fire. And we have the benefit of being that location to campus. So Will always have that premium, even if the Austin multifamily market were to soften you've got that great benefit of being walked a class, whereas you know the further from campus properties could maybe see some softness from that.
spk15: Okay, and the second question for me on the Berkeley master plan development. Could you give us a sense, as the plans are evolving, kind of a minimum capital needs required from ACC's balance sheet and maximum needs these next few years as you guys scope out the project?
spk13: And again, this is Bill. At this point in time on the Berkeley Master Plan, what transactions are third party, what transactions are ACE, how those play out? And again, this is a long-term planning process. So, you know, this work is, the total scope could be over the next decade. And so how much of that actually turns into ACE and equity requirement is yet to be determined. We'll have a long runway as it relates to as those decisions are made with the institution to announce that and to think about it in those contexts. But at this point, it's still too early.
spk10: Yeah, and John, I guess that reminds me, I think somebody asked, you know, a somewhat related question earlier that I didn't fully answer in terms of, you know, how we think about our funding and our leverage here. as additional developments come to fruition beyond the current pipeline. And of course, we will look to, you know, match fund those, match time those, as we've talked about historically, doing a better job of to maintain a more stable earnings growth trajectory. And so, you know, we will look at all the forms of capital available to us. You know, we continue to have a great partnership with Allianz in that 45-55 JV structure we have with them, and we think that's a great alternative as part of our, you know, set of capital-raising options to be able to contribute assets into and really match time any kind of development activity we might have.
spk15: All right, great. Thank you.
spk00: Again, if you'd like to ask a question, please press star, then 1 at this time. Our next question comes from Rick Skidmore with Goldman Sachs. Please go ahead.
spk14: Good morning, Bill. Just a question on the comment that you made in the press release around rent rates and in line to slightly ahead of a year ago. Can you just talk about how you think about rent rate growth as you go into the fall academic year? And going back to your analogy on the airplane, Do rent rates go up as you get closer to that, or do they go down?
spk13: Yeah, and certainly the first comment that I would make is, you know, asset by asset, unit type by unit type, market by market, we look at what that velocity is and adjust rates accordingly. And so, for example, you know, I mentioned we had, you know, several three to four dozen properties that were full this year, virtually, you know, at 98 plus percent. That's a different pricing matrix where we can still be aggressive as you would in a pre-COVID environment. However, if you look at the broader portfolio as a whole, with approximately 700 basis points of occupancy diminishment from a normal year, first and foremost, we look at making sure that we make the occupancy gains and don't damage velocity by being too aggressive in rate. And we also mentioned that the market as a whole, in Jennifer's comments in the release, are being patient in terms of understanding the difference in velocity. And so when you look at the portfolio as a whole, we do look at that, you know, more of a flattening of rents in this year as people are focused on making up those occupancy gains. So I would say it's very cautious where you have occupancy upside and only being implemented in a normal fashion in the several dozen assets where we have normalcy based on fortress locations and demand for our lease up. We do, as I mentioned, have a little bit more potential in that the return of occupancy in our on-campus assets that are a higher price typically lead to an average rent per bed that's a little bit of an increase over just the straight rental rate growth.
spk14: Thank you.
spk00: Our next question is a follow-up from Nick Joseph with Citi. Please go ahead.
spk03: Hey, it's Micah Bellerman here with Nick. So I was wondering if you can talk a little bit about there's a number of student housing portfolios, some small, some larger, on the market deals as though deal activity is picking up. How in the reconstituted capital allocation committee on the board and in management, how are you now evaluating those portfolios on the market today?
spk13: Yes. First and foremost, Michael, at this point in time, we are chopping wood and we're focused on putting the value of our own portfolio back in place in this lease up.
spk15: You should sell that wood, by the way.
spk13: Well, sometimes you should. But certainly, as we look and the current focus is on returning that value in our own portfolio, we do believe that the bulk of transactionary activity that you're going to see is going to be coming in Q4 of this year and Q1 of next year as you see those values returned. And so we will underwrite transactions, as we always do, looking at what is the growth rate of opportunities that are before us based upon how much upside continues to be on an asset-by-asset portfolio in a post-COVID world and implement proper investment when we can create outsized returns for our investors.
spk03: I guess are you looking at maybe activating more disposition activity today to put yourself in a position to, if you wanted to be active in those acquisitions, to have the balance sheet and all the capital necessary? So I don't know if that's part of the plan today in terms of selling more assets, looking at institutional joint ventures to really gain that capital and maybe also get insights about where the market's pricing assets today.
spk10: Yeah, you know, I'll jump in on that real quick, Michael. I think the first thing is, you know, we do have a capital recycling plan that we've laid out. Obviously, we would increase that if, you know, our cost of equity doesn't make sense for investment. If we think there's an appropriate match funding we can do with additional dispositions for external growth opportunities that have upside, as Bill talked about. Right now, The important part is to let the student housing market re-stabilize. We have seen cap rates hold in throughout the pandemic, but we have seen values on stuff that has transacted impacted by the current in-place NOI. And so both ourselves and the broader market want to wait and let that releasing occur for this fall and prove out more stabilized values that we aren't giving away value just based on short-term disruptions to NOI. And so I think you'll see us be able to be more specific about amounts and timing of dispositions as we get into this fall, and of course any external growth opportunities that we would think make sense from an upside standpoint we would match fund with whatever we think is the most appropriate cost of capital that creates value.
spk03: In terms of just being an operator as well as an owner, are you finding basically just institutional capital calling on you for some of these portfolios in the marketplace where they're willing to be the 70%, 80% of equity, but they need industry expertise and operational expertise to So I'm just wondering if there's, are you being asked to partner in some of these deals to go forward?
spk13: Yeah, Michael, there's always strong institutional capital interest in the space and certainly people that want to partner with American Campus. As you know, we are running our own process and we are very selective in terms of the partners that we will pick in terms of doing institutional joint ventures and that we want to make sure that we're aligned in terms of asset characteristics, and term and hold periods that align with us. And so we get courted all the time by the capital that's coming in, but we are very selective in terms of who we are looking to partner with.
spk03: Okay. Thanks for the time.
spk13: Thank you.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Bill Bayliss for any closing remarks.
spk13: We'd like to thank you all for joining us for this update. This is a quarter, again, of keeping focused on what the tasks we had before us and the lease up and hoping, again, to continue down that road to normalcy toward fall of 21. We thank you, and we'll look forward to talking to you in A. Reaton June.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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