American Campus (ACC) Declares $508 Million Asset Sale

Student housing REIT – American Campus Communities, Inc. (NYSE:ACC) – announced the sale of $508 million of non-core portfolio to Saban Real Estate Group. Precisely, the sale which was closed on Nov 15, involved 19 assets, containing 12,083 beds. The move provides the dry powder for investing in its accretive development pipeline.

The deal included prepayment of $197.3 million of secured mortgage debt as well and marked an average economic cap rate of 6.1%.

Of late, American Campus Communities has been focusing on shedding its non-core assets. Together with the disposition of two non-core properties in first-quarter 2016, the company has made around $582 million of non-core asset sales this year. Further, the company has two residual non-core assets, which it continues to market and expects to sale in early 2017.

The sale of the non-core assets, which were acquired as part of larger portfolio acquisitions, has boosted the company’s portfolio quality. In fact, the company’s overall proximity to campus improved to a median distance to campus of just one-tenth of a mile, from two-tenths of a mile. Also, with the assets sold being 16 years old on an average, the company’s current portfolio now improves to an average of 8.5 years.

American Campus Communities enjoyed ownership of 170 student housing properties containing around 105,300 beds as of Sep 30, 2016. Moreover, considering its owned and third-party managed properties, total managed portfolio aggregated to 205 properties, with about 133,600 beds.

Student housing REITs like American Campus Communities and EdR (NYSE:EDR) lease their units to students unlike residential REITs such as AvalonBay Communities, Inc. (NYSE:AVB) and Equity Residential (NYSE:EQR) that are open to all. Such real estates are generally situated in close proximity to colleges and universities.

Therefore, enrolment 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 graduates are making – enrolment 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 Students prefer to shift to these properties with better amenities than their old, outdated housing. However, rising supply is softening a number of select markets and leading to a slowdown in leasing velocity.

American Campus Communities currently has a Zacks Rank #3 (Hold).

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