American Campus Communities, Inc. (ACC), Education Realty Trust, Inc. (EDR): College Attendance Falls, Should Student Housing REITs Worry?

Page 1 of 2

Colleges have seen enrollment fall for two years after peaking in 2011. That’s not a good thing for colleges, but will it also tarnish the fortunes of American Campus Communities, Inc. (NYSE:ACC)Education Realty Trust, Inc. (NYSE:EDR), and Campus Crest Communities Inc (NYSE:CCG)?

The United States has long pushed a college education as the fastest way to get ahead. With college graduates earning more than those without a degree, it’s easy to see why college enrollment had been heading higher for years. The deep 2007 to 2009 recession pushed even more people into institutions of higher learning.

However, the financial benefit of a college education has diminished over time and unemployment is finally trending lower. Add in bad press about ever-increasing college costs and it’s no wonder that college enrollment has fallen in each of the last two years. While that has obvious repercussions for colleges, it could also be an issue for the real estate investment trusts (REITs) that own and operate student housing. Only, it’s more likely help their businesses than hurt them.

As enrollments fall, colleges will be under financial stress. That will likely drive more colleges to monetize assets like on-campus student housing. REITs, with ready access to capital via stock and debt issuance, will be able to step in as valued partners. That, in turn, will grow their portfolios and rent rolls. This trend, then, should be seen as a positive for the student housing subsector.

The Big Man on Campus

American Campus Communities, Inc.American Campus Communities, Inc. (NYSE:ACC) is the biggest player in the student housing market in the United States. The REIT owns 161 communities on or near college campuses. It also manages an additional 33 properties. American Campus Communities, Inc. (NYSE:ACC) is already a key player in the on-campus space, and recently started construction on projects for Princeton University, Texas A&M University, and West Virginia University.

Shares have traded lower in sympathy with the entire REIT industry, but management also recently lowered its projections for future performance. A big part of the issue was lower occupancy and rental rates. Clearly both of those factors come from slowing college enrollment. However, acquisition and construction activity should more than make up for these headwinds.

The stock yields around 3.6%. While the rent roll has grown notably, the dividend has remained stagnant for the last seven years. That makes American Campus Communities, Inc. (NYSE:ACC) more appropriate for investors seeking growth, with a side helping of income.

Not Exactly Second Fiddle

Education Realty Trust, Inc. (NYSE:EDR) owns or manages 67 communities. It’s only a fraction of the size of American Campus Communities, Inc. (NYSE:ACC). However, the REIT is using a similar growth strategy. Education Realty Trust, Inc. (NYSE:EDR) recently inked a deal with the University of Kentucky to build additional on-campus housing. Last year it built on-campus housing for Mansfield University.

Education Realty Trust, Inc. (NYSE:EDR) yields around 4.3%. Although its past includes multiple dividend cuts during the 2007 to 2009 recession, the last two years have seen both dividend and rent roll increases. And the company recently announced another 10% dividend hike. Investors seeking growth and income should like this option, particularly if dividend growth is a desired attribute.

Small, but Growing

Campus Crest Communities Inc (NYSE:CCG), meanwhile, is the youngest of the trio, going public in late 2010. However, after a recent acquisition, the REIT now owns or has an interest in 84 properties. That’s allowed it to leapfrog past Education Realty Trust, Inc. (NYSE:EDR) to become the second largest public player in the space. That said, the company appears to be more focused on off-campus housing than the others at present.

Page 1 of 2