Education Realty Trust, EdR, has been riding on a wave of structural changes in what is known as “collegiate housing.” College dormitories have definitely not been the same as they were years ago; they have modernized and now resemble state-of-the-art apartment complexes. Despite supply increasing to keep ahead of enrollment, EdR has enjoyed growth in occupancy and renting rates, for which a key reason is location to the campus: The median distance from its buildings to campus is one-tenth of a mile. Currently, 71 percent of beds are located on or pedestrian to campus.
Targeting big universities with 25,000 students or more, since 2010, EdR has showcased significant compounding average growth rates:
- 2 percent same-store revenue
- 22 percent net operating income
- 20 percent collegiate housing revenue
- 19 percent dividend per share
The results for the first quarter of 2015 were strong: Pre-leasing for the 2015 to 2016 lease term has been ahead of what it was last year; same-store NOI growth was 5.8 percent; occupancy has hovered around 96 percent; and rent for the upcoming term should rise between 2.5 and 3.5 percent.
EdR has benefited from other trends besides student housing modernization. One is the budget constraints from which state universities have suffered, which preclude investing in aging student housing. The University of Kentucky has responded by revitalizing its campus portfolio, a project which may encompass over 9,000 beds in a five- to seven-year period.
Another trend is that since the number of women surpasses that of men in college, women’s parents are more willing to pay for security features, resulting in some increasing demand for better housing. The earnings gap between young adults with and without a baccalaureate has also stretched to its widest level in almost fifty years, making the case for college education stronger.
From a valuation perspective, EdR is trading at a price-to-FFO of 17, which lies within its historic norm. Dividend yield (4.6 percent) has been among the highest in the residential sub-sector. The combination of good dividend yield and structural changes in the housing industry give EdR potential as a long-term purchase.
Source: EdR, Fast Graphs
Written by Heli Brecailo
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