On Tuesday, October 9, analysts at MLV Capital, MLV Equity, and their parent company McNicoll, Lewis, and Vlak initiated coverage on two specialty Real Estate Investment Trusts focusing on the acquisition of multi-unit academic-based housing properties. Campus Crest Communities (CCG) was initiated with a "Buy" rating and Education Realty Trust, Inc. (EDR) was initiated with a "Hold" rating. In this article my intentions are to focus primarily on Campus Crest Communities and demonstrate why I think this company is much better investment than some of the names within both the Academic REIT and Mortgage REIT sectors.
Should potential investors consider a position in this Academic REIT as an alternative to some the names within the Mortgage REIT sector, as mREITs have seen a considerable decline in dividend payouts over the last 24 months?
I strongly think they should, however we need to first examine the performance of Campus Crest Communities in an effort to demonstrate how its outpaces the performance of one of its counterparts within the Academic REIT sector before we look at how it compares to its counterparts within the Mortgage REIT sector.
When it comes to Campus Crest Communities, there are few things potential investors should know before diving right in. First, the company currently yields 6.10% ($0.64), which is much higher than the 3.20% ($1.35) yield of its Academic REIT peer American Campus Communities, Inc. (ACC). The good news for potential shareholders is the fact that CCG raised its dividend in December 2010 to $0.16/share from $0.127/share and has kept the payout steady ever since.
The second thing to consider is the premium to book value that Campus Crest Communities trades versus American Campus Communities, Inc. As of yesterday's close, Campus Crest Communities was trading at a 23.07% premium to the company's current book value of $8.71/share. On the other hand American Campus Communities was trading at a 123.65% premium to the company's current book value of $19.11/share.
Given the fact that Campus Crest Communities clearly outpaces American Campus Communities, I'd wanted to see how well the company has fared when compared to the likes of Chimera Investment Corp. (CIM) and Annaly Capital Management (NLY) in terms of dividend behavior over the last 24 months.
Let's begin this portion by discussing the recent dividend behavior of CIM and NLY since September of 2010. As I've previously noted in my recent article discussing the backstory behind many of the Mortgage REIT yields, both Annaly and Chimera have seen significant declines in dividend distributions over the last 24 months.
On one hand "Chimera Investment has reduced its dividend five times in the last 24 months. The company paid a dividend of $0.18/share on September 30th, 2010, and on September 27th, 2012, managed to only pay a dividend of $0.09/share. If we examine the numbers closer we can see that a total cut of $0.09/share or 50.00% has taken place." On the other hand "Annaly Capital has reduced its dividend six times in the last 24 months. The company paid a dividend of $0.68/share on September 30th 2010 and on September 27th 2012 managed to only pay a dividend of $0.50/share. If we examine the numbers closer we can see that a total cut of $0.18/share or 26.47% has taken place."
Given the fact that the management strategies of both Chimera and Annaly are very similar in scope, I'm not surprised by the recent dividend behavior of both companies. That being said, most income driven investors are in this for the sustainability of a company's dividend. Based on my comparisons, it seems to me that the dividend of Campus Crest Communities should be considered much more sustainable then the dividends of both Annaly Capital and Chimera Investment Corp.