Educated Gains at American Campus

03/21/2014 7:00 am EST


John Dobosz

Editor, Forbes Premium Income Report and Forbes Dividend Investor

College kids need places to live, says John Dobosz. This need is creating an investment opportunity according to the income expert and editor of Forbes Dividend Investor.

Many college kids double-up in dorm rooms on-campus for their freshman year, but then begin to peel off into alternate haciendas like fraternity or sorority houses, or get some roommates and move into an off-campus apartment with less restrictive rules and better parties.

Capitalizing on the demand by students for a place to rest their heads are a number of college-town landlords, ranging from owners of houses in student ghettos to big developers and REITs.

Austin, Texas-based American Campus Communities (ACC) is the biggest national player in both on-campus and off-campus student housing, with 166 properties containing 101,900 beds. Adding in properties managed by third parties, ACC has 202 properties with approximately 128,000 beds.

Shares of ACC shot higher two weeks ago, after the REIT reported better than expected results for the fourth quarter and full year of 2013.

Last year's modified funds from operations (FFO), a key real estate profit measure, rose 16.2% to $2.22 per share. Management forecasts 2014 modified FFO will come in between $2.27 to $2.35 per share.

Dividends have been paid without fail, and have never decreased, since ACC came public in 2004. Last May, ACC bumped up the quarterly payout by 6.5% to $0.36 per share, good for $1.44 a year and a yield just below 4%.

The timing for buying American Campus Communities now looks good. Multiples are slimmer than they have been in the past few years.

The average price-to-sales ratio since 2011, of 7.13, is 23% higher than the present 5.78 P/S ratio, suggesting a $44.70 stock price if it were to regain that average multiple.

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