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Student Housing Flunked In 2017

Nov. 02, 2017 10:11 AM ETBlackstone Inc. (BX), EDR-OLDIYR, VNQ3 Comments


  • Student Housing REITs have struggled immensely so far 2017, falling 15% YTD. Costly construction delays and oversupply in several key markets overshadowed an otherwise decent year.
  • 3Q17 earnings results were weaker than expected and guidance was lowered for full-year 2017. Final leasing results came up short of estimates for this current school year.
  • Both EDR and ACC noted similar trends of oversupply coupled with weaker enrollment growth, a trend that has continued over the past half-decade. Lower supply growth is expected in 2018.
  • Development remains the modus operandi and growth engine as both REITs have expanded their portfolio by roughly 10% per year. Institutional demand for student housing assets remains strong.
  • Investors have begun to question the “defensive” nature of the asset class given the choppy results in 2017. Purpose-built student housing faces risks that are distinct from typical multifamily assets.

REIT Rankings: Student Housing

In our REIT Rankings series, we introduce readers to one of the fifteen REIT sectors. We rank REITs within the sectors based on both common and unique valuation metrics, presenting investors with numerous options that fit their own investing style and risk/return objectives.

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Student Housing Sector Overview

Student housing REITs comprise 1% of the REIT Indexes (VNQ and IYR). Within our Student Housing Index, we track the two student housing REITs, which account for roughly $8 billion in market value: American Campus Communities (ACC) and EdR (NYSE:EDR-OLD).

student housing reits

For student housing, "quality" is a function of several factors including the proximity to campus, the quality of the academic institution, and the barriers-to-entry characteristics of the markets each REIT targets. These firms own a mix of on-campus, near-campus, and off-campus facilities, oftentimes in partnership with the University. While real estate ownership is the primary revenue source, these REITs also offer development, consulting, and management services to University partners.

Generally, these REITs target large flagship state universities. While both REITs are diversified across the country, American Campus Communities has more of a west coast "PAC-12" presence, while EDR has a more "SEC" presence, particularly at the University of Kentucky, where EDR has built six projects for the university. EDR has a slightly higher percentage of on-campus units. While both REITs are highly active developers compared to other REIT sectors, historically ACC has been relatively more acquisition-focused while EDR has been more development-focused. As development is considered "riskier," EDR reduces this risk by having a well-capitalized balance sheet.

These REITs utilize several different

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