American Campus (ACC) Begins Berkeley University Project

Student housing REIT American Campus Communities (NYSE:ACC) has been making good strides of late. The company, which recently announced its sale of $508 million of non-core portfolio, has made an announcement of ground breaking 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 would be near to university facilities, across from Haas Pavilion and is likely to house first-year students. The project would have eight stories of modern student accommodations, together with amenity space and around 7,000 square feet of urban retail space on the ground floor. It is set to open in the fall of 2018.

Unlike residential REITs like AvalonBay Communities, Inc. (NYSE:AVB) and Equity Residential (NYSE:EQR) , whose rental units are open for leasing to all, student housing REITs such as American Campus Communities and EdR (NYSE:EDR) lease their real estates to students. Hence, such real estates are generally required to be set up in places in close proximity to colleges and universities.

Moreover, 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. And per the U.S. News and World Report, UC Berkeley is currently ranked as the top public school in the country, with over 38,000 students enrolled in the fall of 2015.

Therefore, this public-private partnership deal, structured under the American Campus Equity (ACE) program, seems a strategic fit. This program offers universities the scope to enhance 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.

On the other hand, American Campus Communities recently declared the sale of 19 assets, containing 12,083 beds, for $508 million. In fact, 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. We believe that such moves provide the company the dry powder for investing in its accretive development pipeline. (Read more: American Campus Declares $508 Million Asset Sale)

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.

American Campus Communities currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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