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Student REITs 2016-2017 Leasing Term: How Has it Been?


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Recently, American Campus Communities, Inc. (ACC - Snapshot Report) and EdR (EDR - Snapshot Report) , the reputed student housing REITs, have come up with their leasing updates for academic year 2016-2017.

American Campus Communities announced that the company’s 2017 same-store wholly owned portfolio was 97.3% leased as of Sep 26, 2016, as against 97.0% leased as of Sep 30, 2015. This excludes the 19 assets held for sale. The projected rental rate hike over in-place rents is 3.5%. The company also stated that a buyer has been identified and a letter of intent has been executed. It targets to close this transaction in Q4. Further, its new wholly owned properties are 91.9% leased.

On the other hand, EdR’s same-community portfolio (27,537 beds) opened the 2016-2017 lease term with 96.7% occupancy and rate growth of 3.4%. Though close to the peak of occupancy levels for the same-community portfolio, the opening occupancy for the 2016-2017 lease term is 111 basis points (306 beds) behind the previous year. It is also 61 bps (168 beds) less than the low end of its prior guidance. This reflects the negative leasing impact from the communities at Missouri and Oklahoma.

Excluding the two universities, the same-community portfolio had 97.9% occupancy, unchanged from the prior lease term, with average rate increase of 3.5%. Moreover, its new-community portfolio opened the 2016-2017 lease term with 88.8% occupancy, at the lower end of expectations.

Per a recent study by Axiometrics, the student housing market recorded solid rent growth in the fall 2016 leasing session, though leasing slowed to some extent.

In fact, the annual effective rent growth has shown progress on a national basis. Going by statistics, the effective rent levels for fall 2016 have averaged $618 per bed nationally. This denotes a rise of 2.3% from a year ago, with the majority of properties averaging in the range of 2–4%.

However, rising supply is softening a number of select markets and leading to a slowdown in leasing velocity. Considering the three-year, same-store properties, prelease declined 103 basis points (bps) from Aug 2015, but managed to post an increase of 70 bps from Aug 2014.

As a matter of fact, student housing REITs differ from the residential REITs like AvalonBay Communities, Inc. (AVB - Analyst Report) and Equity Residential (EQR - Analyst Report) in the aspect that the student REITS lease their units to students. Such real estates are generally situated in close proximity to colleges and universities.

Therefore, enrollment growth ends up being a major driver for student housing assets. In fact, with a higher education earnings gap – millennials with high school diploma earning just 62% of what the college graduate is making – enrollment statistics will get a boost. Also, there is pent-up demand for new, purpose-built student housing properties. Students prefer to shift to these properties with better amenities than their old, outdated housing.

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