Student Housing: Room To Board Student Housing REIT Before It Gets Too Pricey

American Campus Communities recently delivered better than expected first quarter results, including a 13% positive earnings surprise.

 

Funds from operation (FFO) more than doubled over the same period in 2010 as revenue rose 27%.

 

Analysts revised their estimates higher off the strong quarter, sending the stock to a Zacks #2 Rank (Buy). ACC also pays a dividend that yields an attractive 3.9%.

 

American Campus Communities is a REIT focused on the development and management of student housing communities in the U.S. It owns 103 residential projects with more than 64,000 beds.

 

First Quarter Results

American Campus Communities reported strong first quarter financial results on April 26. Earnings per share came in at 54 cents, well ahead of the Zacks Consensus Estimate of 48 cents. It was a 32% increase over the same quarter in 2010.

 

Revenue for the quarter was up 27% year-over-year to $101.6 million, which also beat the Zacks Consensus Estimate of $99.0 million. The increase was driven in large part by higher occupancy and rental rates for the 2010-2011 academic year as well as the acquisition of 17 properties during 2010. Meanwhile, operating income surged 40% as the company leveraged its fixed expenses. Funds from operations (FFO) more than doubled to $39.8 million in the quarter.

 

Solid Growth Ahead

Following solid first quarter results, analysts revised their earnings estimates for both 2011 and 2012 higher, sending the stock to a Zacks #2 Rank (Buy).

 

The Zacks Consensus Estimate for 2011 moved up to $1.75 per share, representing solid 11% growth over 2010 EPS. The 2012 consensus estimate also moved higher and currently stands at $1.91. This corresponds to 9% EPS growth.

 

Several analysts are bullish on ACC and believe that it can deliver double digit FFO for years to come through large development pipelines and solid core rent growth.

 

3.9% Yield

 

Because it is a REIT, American Campus Communities pays out a majority of its earnings in dividends. It currently yields an attractive 3.9%. ACC has paid the same 33.775 cent quarterly dividend since early 2005, however.

 

Valuation

Shares of ACC are currently trading at 19.0x 12-month forward earnings, a slight premium to the industry average of 17.2x, but essentially in-line with its historical median.

 

The stock’s price to book multiple of 1.9 is also a bit higher than industry average at 1.6, but is still within value territory.

 

ACC’s relatively stable business model and strong dividend make this stock an attractive buy for growth and income investors.

 

[blogs.forbes.com]

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