An Educated Investment in America's Aspiring Job Applicants

By Neil George

With the value of a college education apparent to most students, it’s no wonder that college enrollments are continuing to mount. Recent surveys show that more than 73 percent of high school graduates have been setting off to college. And it’s projected by the College Board that those enrolling in college will amount to more than 3 million per year, every year, at least through 2019.

It is no wonder that colleges have been eager to expand their facilities to meet this demand — but there still are plenty of shortfalls.

Around the nation, universities such as Arizona State University have only 13,000 beds for some 74,000 students. And this school is hardly alone in this shortage.

To house all of these millions of students while not risking endowments, a trend has been to draw external investors into the building and operation of newer dorms.

There are a few public companies that are driving the student housing market. One of the leaders in the private dorm market that houses more than 123,000 students and climbing is American Campus Communities (ACC). This real estate investment trust (REIT) has properties around many of the nation’s college markets and continues to perform.

With revenue growth advancing more than 8% and an underlying expansion of its real estate assets running at more than 11%, this  REIT is focused on tapping this growth market.

But at the same time, real estate, even in the best markets, always has risks. This risk is why the debt of the company is controlled with debt to assets at a fraction of most of its peer group. And this combination of growth on the income side with managed finances on the balance sheet side has enabled shareholders to outpace not just its peers, but the overall REIT market, as well.

During the past five years, including the worst parts of the bible when it comes to real estate, American Campus Communities has delivered an overall return of more than 104.1% — equating to an average annual return in excess of 15.6%.

That’s more than 3.5 times the return of the general REIT market index in the U.S. market. And even as apartment REITs have fared well, American Campus outperformed this entire segment by 1.4 times for the same past five years.

While its dividend yield has come down with the rising share price to some 3.0%, you may want to consider buying some shares under $48 per share.

For a little more income, there’s another interesting newer member of the college housing REIT market. Campus Crest Communities (CCG) came to the public market back in 2010. It has been seeing similar revenue gains, but, at the same time, it has been eager to invest in construction and expansion, putting a near-term strain on shares while it expands. But at the same time, this REIT is paying its bills and servicing its debts well along the way.

And this is why you need to skip the common shares of the REIT and instead go for the preferred shares trading under the symbol CCG A. The preferred pays an 8% dividend/coupon and is currently yielding over 7%. Consider buying some under $28 a share.

Neil George, a contributor to Eagle Daily Investor, is the former editor of Personal Finance and has written for investment journals in the United States, Germany and other countries.