According to a recent Multifamily REIT report on student housing from Canaccord Genuity, while the relationship between changes in asking rents and realized rents is uncertain, the data points help frame managements’ approach to rent increases on a real-time basis. The report looks at REITs the firm covers and is intended to help investors gain a better understanding of rent growth in the current leasing cycle and sheds insight on those markets that are poised for outperformance and underperformance in the upcoming school year.
When looking at American Campus Communities, for example, average asking rents for the 2017/18 school year reflect a 2.5% increase over the same period last year (508 data points), a slight deceleration from our 2.6% estimate published on July 12. However, the firm is not overly concerned with this recent trend, as fewer leases are signed this late in the cycle. “We believe asking rent increases are tracking slightly below guidance at present but still within a reasonable standard error of management’s expectations. We expect ACC’s lease up to come in consistent with guidance, but we see minimal upside to those levels.”
When looking at EdR, which has been very active recently according to The REIT Wire, Canaccord says that average asking rents for the 2017/18 school year reflect a 3.3% increase over the same period last year (204 data points, but excludes most on-campus properties). “Management has guided to rate growth of 2.5-3.5% (excluding NC State) as it relates to the 2017/18 leasing cycle, while the University of Kentucky (included in same-store, but not tracked in our tracker) is expected to be up 3.0-4.0%, in line with our present tracking level.” The company notes that its rent growth estimates exclude the Reserve Stinson at the University of Oklahoma, which EDR sold in June. “The portfolio-wide 3.3% asking rent growth is 2 bp behind last year’s pace, but does not take into account the previously announced leasing challenges at University of Kentucky.”
According to Canaccord, current student housing fundamentals suggest continued solid rental growth rates, while supply remains firmly in check. “With an external growth story that should continue to play out with a gradual increase in public-private partnership RFPs outstanding, we believe both ACC and EDR are poised to exceed long-term expectations. However, we note that in the near and medium terms, we believe EDR is facing property-specific challenges that seem likely to inhibit internal growth over the next year. As such, we continue to prefer ACC shares to those of EDR.”