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Student Housing Fundamentals Suggest Continued Solid Rental Growth Rates

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According to the recent Student Housing Pre-Leasing Monitor, a monthly report distributed by Canaccord Genuity, current student housing fundamentals suggest continued solid rental growth rates, while supply remains firmly in check. The provides a proprietary view of rent growth at student housing REIT properties, where asking rents are available.

The report is intended to help investors gain a better understanding of rent growth in the current leasing cycle. It sheds insight on those markets that are poised for outperformance and underperformance in the upcoming school year. While the relationship between changes in asking rents and realized rents is uncertain, the firm says that these data points help frame managements’ approach to rent increases on a real-time basis.

In looking at American Campus Communities Inc., the firm says that average asking rents for the 2017/18 school year reflect a 2.6% increase over the same period last year (508 data points), a slight deceleration from its 2.8% estimate published on June 5. However, the report says that are not overly concerned with this recent trend, as fewer leases are signed this late in the cycle. “Management reiterated guidance for 2.9% rental rate growth during its most recent leasing update on June 2; as such, we believe asking rent increases are tracking slightly below guidance at present but still within a reasonable standard error of management’s expectations,” the firm says. “Asking rent growth is tracking 58 bps behind this time last year, when rent growth came in at 3.5% by the end of the cycle. There were 15 offerings with rent changes averaging a -0.4% decrease vs. last week’s asking rents.”

In looking at EDR, the company’s average asking rents for the 2017/18 school year reflect a 3.2% increase over the same period last year (208 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. Additionally, we note that the University of Oklahoma was down 2.2% vs. the prior year, an improvement from the 7% decrease we reported in our last pre-leasing monitor on June 5. We note that excluding the University of Oklahoma tracking, EDR’s current average asking rents are up 3.4%. The portfolio-wide 3.2% asking rent growth is 17 bps behind last year’s pace, but does not take into account the previously announced leasing challenges at University of Kentucky. There was one offering with a 5.4% asking rent increase vs. last week’s asking rents.”

Analyst Ryan Meliker says that “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 and a half. As such, we continue to prefer ACC shares to those of EDR.”