American Campus Communities, Inc. (ACC): Rising Costs a Good Omen for Student Housing REITs

Education Realty Trust (NYSE:EDR) owns or manages 60 communities in 23 states. Its bed count is much lower at just over 34,000. This company is also expanding via acquisitions and new builds.

Campus Crest Communities (NYSE:CCG), meanwhile, is the new kid on the block, just coming public this year. At the IPO it owned interests in 39 properties with nearly 21,000 beds. Like its brethren, it is expanding via new builds and acquisitions.

Good and Bad

Building what amounts to long-stay hotels on and near college campuses isn’t a bad business so long as college demand remains strong. If demand stagnates or falters, occupancy could become a notable issue. While this risk is across the entire industry, it is also faced at the college level. Ivy league schools are likely to see higher demand than a lower tier player.

However, these companies can continue to expand by opening or acquiring more locations near in-demand schools or taking over housing from struggling colleges. The latter could be a notable avenue of growth as the government cuts school support and administrators look to maintain services to remain competitive with better funded schools.

In this regard, the student housing REITs could be something of a counter-intuitive play on a transitioning college sector. Indeed, the housing REITs get paid regardless of the jobs that students wind up with or their ability to pay student loans after graduation. As long as a college degree remains an important part of “getting ahead,” there will be demand for student housing.

While the number of colleges is a limiting factor on the sector overall, it appears that none of these companies is close to being hindered by this fact. This will be true even if closings and consolidation takes place because of the current scrutiny of the secondary education industry.

Watch and Wait

Only Campus Crest’s yield of near 5% is truly enticing at the moment, though an impressive share price advance limits upside potential. Still, investors should keep American Campus Communities (NYSE:ACC) and Education Realty Trust on their watch lists waiting for a pullback.

The article Rising Costs a Good Omen for Student Housing REITs originally appeared on Fool.com and is written by Reuben Gregg Brewer.

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