Shares of American Campus Communities, Inc. (ACC) have been rising since announcing the acquisition of student housing properties last month. Also, this Zacks #2 Rank (Buy) REIT currently pays a regular quarterly dividend that yields 2.9% annually.
With a decent dividend yield and an expected long-term earnings growth rate of 9.2%, American Campus Communities looks like a promising pick for investors seeking both growth and income.
Acquisition and Earnings Recap
On December 3, American Campus Communities announced the completion of the acquisition of 19 select student housing properties from affiliates of Kayne Anderson Capital Advisors, L.P for $862.8 million. The acquired portfolio spans several states and consists of a total of 12,049 beds, including 366 beds currently under development at an existing property. The acquisition of the development property is expected to be completed in the third quarter of 2013.
On October 22, American Campus reported third-quarter FFOM (funds from operations- modified) of 32 cents per share, which fell short of the Zacks Consensus Estimate. Though results benefited from improved top line, it was more than offset by higher operating expenses.
Total revenue increased 24.8% year over year to $118.8 million, due mainly to a rise in property acquisitions, completion of development of properties and a hike in rental rates for the 2012-2013 academic year. Same store net operating income climbed 4.1% and the average rental rate rose 3.4% on a year-over-year basis. Yet, total operating expenses advanced 30.2% to $103.3 million due to higher wholly-owned properties costs.
At the end of the quarter, American Campus had cash and cash equivalents of $18.0 million and had $206.0 million remaining under its unsecured revolving credit facility.
American Campus Communities is expected to release its fourth-quarter results on February 11. The Zacks Consensus Estimate for the quarter is 57 cents per share on revenue of $146.0 million.
Earnings Estimates Moving Up
Over the past 60 days, the Zacks Consensus Estimate for 2013 increased 1.3% to $2.39 per share, reflecting a year-over-year improvement of about 23.6%.
American Campus Communities has been consistently paying a quarterly dividend of $0.3375 per share since 2005. The current dividend rate affirms an annual yield of 2.9%.
Shares of American Campus currently trade at 19.6x 12-month forward earnings, a 25.6% premium to the peer group average of 15.6x. Its price-to-book ratio of 2.0 is 9.1% below the industry median of 2.2. Given its strong fundamentals, the valuation looks reasonable.
The company has been continuously outperforming the S&P 500 since mid-October, and has also been outperforming its 200 and 50 days moving averages since the beginning of last month. The return for the stock came in at 7.5% over the last three months compared with the S&P 500's return of 0.6%.
With strong earnings growth projections, a sturdy dividend yield and reasonable valuation, American Campus offers an attractive growth and income opportunity.
American Campus Communities is a real estate investment trust that was founded in 1993. The company is a developer and operator of high-quality student housing communities. The company owns 160 student housing properties containing about 98,800 beds. The company has a market cap of nearly $4.9 billion. Post Properties Inc. (PPS) and Associated Estates Realty Corporation (AEC) are the other Zacks #2 Rank (Buy) stocks in the same industry.
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