Canaccord: More Upside in Student Housing REITs
Issues Buy Ratings on ACC and EDR
Many real estate investment trusts (REITs) offer solid returns to income investors. And according to Canaccord Genuity, there is one type of REIT that stands out: student housing REITs.
Ryan Meliker and Michael Kodesch, analysts at Canaccord Genuity, said that student housing REITs are about to get another catalyst at the end of next month, when the 2016 National Multifamily Housing Council (NMHC) Student Housing Conference takes place. (Source: “Canaccrod Bullish on Student Housing REITs,” Barron’s, August 16, 2016.)
The analysts have two stock picks: American Campus Communities, Inc. (NYSE:ACC) and Education Realty Trust, Inc. (NYSE:EDR). Both companies are rated as a “Buy.” ACC received a price target of $59.00, representing a 17.2% potential upside, while EDR received a $54.00 price target, 18.4% higher than the current level.
American Campus Communities is the largest developer and manager of private student housing in the U.S. It owns 168 student housing properties that contain approximately 103,200 beds.
“Through August 12, 2016, ACC’s average asking rents for the 2016/17 school year reflect a 3.2% increase over the same period last year (597 data points). Management has guided to 3.0% rental rate growth for the 2016/17 year,” wrote Meliker and Kodesch in a note to investors. “As such, we believe asking rent increases are tracking roughly in-line with guidance at present. Asking rent growth is tracking 22 bps ahead of this time last year. There were no changes vs. last week’s asking rents.” (Source: Ibid.)
Education Realty Trust is a self-administered and self-managed REIT that owns or manages 79 communities with more than 41,000 beds, serving 52 universities in 24 states. The analysts wrote that, “Through August 12, 2016, EDR’s average asking rents for the 2016/17 school year reflect a 3.3% increase over the same period last year (164 data points). This suggests that average asking rent growth is pacing roughly in-line with guidance, with management anticipating rent growth for the 2016/17 term to be up 3.4%.”
Note that EDR raised its quarterly dividend rate by three percent last month and now has an annual dividend yield of 3.33%. ACC stock, on the other hand, has an annual yield of 3.34%.