Student Housing Business is the voice of the student housing industry.
Issue link: https://studenthousingbusiness.epubxp.com/i/616872
THE SHB INTERVIE W NOVEMBER/DECEMBER 2015 STUDENT HOUSING BUSINESS .COM 86 Leading Change EdR's Randy Churchey has gone from industry outsider to one of its leading fgures. SHB catches up with EdR's chairman and CEO to hear his thoughts on the industry, the company and the competition. Interview by Randall Shearin and Richard Kelley M When Randy Churchey joined EdR in 2010 as president and CEO, a few eyebrows were raised about his lodging sector background. But Churchey had served on EdR's board of directors for several years, so he was no stranger to the company or the industry, and much of his experi- ence in the lodging industry had come at public companies, which allowed him to bring to EdR the skill set it needed — how to navigate Wall Street. Five years later Churchey has EdR extremely well-positioned and has lifted the student housing industry in the process. As anyone who has met Churchey will agree, he is quick to spread the credit for accom- plishments to the many talented employees at EdR and to others in the industry. He now serves as chairman and CEO of the Memphis, Tennessee-based company, which operates more than 42,000 beds of student housing nationwide. EdR (NYSE: EDR) reported its third quarter results at the end of October, a ftting time for SHB to check in with Churchey to get his take on the industry, and how the company has changed over the past fve years. SHB: Where do you think the student hous- ing industry, as a whole, is at this moment in time? How is it doing and where in the cycle is it? Churchey: The student housing industry has performed very well over the past fve-plus years and the intermediate term future looks very bright. When we talk with investors about investing in the student housing busi- ness — and hopefully EdR —we share a num- ber of attributes of the business they should be excited about. First, as with all real estate, it comes down to supply and demand. We quote the statistics that show that demand for accom- modations are going to increase an average of 1.2 percent per year until 2022. Then we point out the small amount of new supply that is opening. New demand is substantially equal to new supply. From a real estate perspective, that gives every- body a great deal of comfort. Another statistic we point to — that ends up making those num- bers better — is the modernization that's going on across America. Students want to live in pur- pose-built student housing with all of the amenities and security our commu- nities provide. They do not want to live in the old dilapidat- ed accommodations that many of us stayed in; most students just won't accept that any lon- ger. In total, the student housing industry has supply and demand in balance, and then you have this added tailwind of the modernization of student housing. The combination of the two creates very positive underlying dynamics for our business. SHB: Do you think student housing is continu- ing to evolve as a sector apart from traditional market-rate multifamily? Churchey: Yes, this separation is primarily due to the different factors that infuence the underlying businesses. For instance, multi- family business is driven by job creation and people choosing to live in apartments versus single-family housing. Student housing busi- ness is driven by university enrollment. In a recession, university enrollments increase because students can't fnd employment, and therefore they stay in college longer. This has a positive impact on student housing business verses a negative impact on multifamily busi- ness. Lastly, Wall Street and institutional inves- tors have seen the track record of the public student housing REITs, and this has led to increased interest in the student housing sec- tor. These fundamental factors have led to the multifamily and student housing businesses being viewed separately. SHB: You touched on Wall Street and institu- tional investors. When you are meeting with investors, how do they view the sector now? I take it you no longer have to educate them on what purpose-built student housing is? Churchey: EdR and ACC being public for 10 years has educated these parties about the student housing industry. There's ready acceptance from Wall Street investors for our companies. The two companies have a posi- tive long track record, so there's no longer an uphill climb of educating Wall Street. I still remember, a few years back, when there were some bumps in leasing, and we had to spend a lot of time educating Wall Street on why enrollment will continue to go up and why student loans and online education are not problems to our business. These topics are no longer discussed. We were just at the NAREIT [National Association of Real Estate Investment Trusts] conference, and we ran a full schedule for two full days with investor meetings. We had 28 different investors meet with us — and I assume the same with ACC — so Wall Street knows the product and knows the companies very well. SHB: Tell us a little bit about the third quarter for EdR. You just released the results; mostly increases. Tell us a little about what you are proud of and what results you didn't see there? Churchey: Third quarter and the year-to- date numbers were fantastic. We increased our earnings guidance for the year based upon those numbers. What really stood out was that every aspect of the business was a little better than what we had anticipated. Same community net operating income was higher because our revenues were a little bit higher; our expenses were a little bit lower. Our third-party development fee income was higher because of some additional projects we were awarded. Interest expense was smaller because most people had assumed interest expense would be going up throughout the year, but interest rates stayed fairly stable. So the good news was across the board. Also, we had a few new acquisitions that added to the RANDY CHURCHEY Chairman and CEO EdR