Education Realty Shares Not Likely To See Upside Soon

Ryan Meliker of Canaccord Genuity downgraded shares of Education Realty Trust, Inc. EDR from Buy to Hold with a price target lowered from $46 to $43 after the company's leasing update for the 2017-2018 lease term.

Education Realty cited challenges in its upper-class leading in its University of Kentucky portfolio, which prompted management to lower its expected same-store revenue growth for the 2017 and 2018 year by 100 basis points. The analyst noted this "disappointment" represents yet another "one-off issue." Prior issues include changes within residential life requirements at NC State and prior challenges at properties within University of Missouri and University of Oklahoma.

"While each of these situations is unique and taken individually seem to be "one-off," the market may begin to question whether there is a greater underlying issue and whether more "one-off" issues will materialize," Meliker wrote.

Lower Outlook

Meliker argued that while Education Realty reaffirmed its 2017 FFO guidance, he expects the company's fourth quarter results to be impacted by the 100 basis point occupancy reduction which will bring 2018 estimates down.

In fact, the analyst previously expected the 2017-2018 year to have an occupancy tailwind from a recovery at Missouri and Oklahoma but these tailwinds will now be more than offset by headwinds at UK. As such, the analyst is now modeling the company's same-store NOI to be up just 1.5 percent versus a prior estimate of 2.4 percent.

Meliker's 2018 NOI growth was also revised lower by 110 basis points to 3.0 percent and FFO was lowered by four cents to $1.99. As such, the analyst's 2018 FFO now stands $0.11 below consensus estimates which implies the Street could similarly move lower over time.

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