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Student Housing REITs to Score Well with On-Campus Makeover

AVB EQR EDR ACC

Trades from $3

Student housing REITs like EdR (EDR - Free Report) and American Campus Communities (ACC - Free Report) have decent opportunities to excel in the upcoming years. This is because demand is emanating for on-campus developments from universities facing state budget cuts and low funds. This is hindering the capability of universities to develop or renovate their ageing housing properties before offering these to new students. And on-campus housing usually enjoy full occupancy.

In fact, as per REIT.com that posted excerpts from a recent interview with EdR’s president and CEO, Randy Churchey, such external growth through on-campus development provides “most exciting opportunity.”

Also, in November, American Campus Communities revealed groundbreaking information on a student housing project in association with the University of California - Berkeley. Specifically, the company is slated to come up with a 781-bed community on the southern side of the University’s main campus. It is set to open in the fall of 2018. (Read more: American Campus Begins Berkeley University Project)

This public-private partnership deal is structured under the American Campus Equity (ACE) program. This program gives universities the scope to enhance their student housing portfolio without using its financial resources, while the student housing REIT makes accommodations at lower development costs and operating expenses, with affordable rents. In fact, from such assets, American Campus earns long-term cash flows and enjoys the benefit of ownership.

Unlike residential REITs, including AvalonBay Communities, Inc. (AVB - Free Report) and Equity Residential (EQR - Free Report) , whose rental units are open for leasing to all, student housing REITs lease their real estates to students. Hence, such real estates are generally required to be set up within or in places close to colleges and universities.

Also, enrollment growth is a major driver for student housing assets. And with a higher education earnings gap – millennials with high school diploma are earning just 62% of what college graduates are making – college enrollment is set to increase.

In fact, according to the National Center for Education Statistics, undergraduate enrollment in the U.S. is projected to reach 19.8 million students by 2025, representing a surge of 14% from the 2014 enrollment figure of 17.3 million. Moreover, total undergraduate enrollment in degree-granting postsecondary institutions climbed 31% to 17.3 million in 2014 from 13.2 million in 2000. Such trends point to higher demand for properties from student housing REITs.

Presently, both EdR and American Campus Communities carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Encouragingly, year to date, shares of EdR and American Campus Communities have ascended around 7.2% and 14.0%, respectively, against an 8% decline witnessed by the Zacks categorized REIT Equity Trust – Residential industry.


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