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Sitting Pretty

APARTMENT FINANCE TODAY • November/December 2008

A bold acquisition during a market meltdown puts American Campus Communities in the spotlight.

BY LIZ ENOCHS

American Campus Communities, Inc., is betting that college towns are, if not recessionproof, at least recessionresistant. As the rest of the U.S. economy was faltering and federal policymakers were trying every trick in their handbook to light a fi re that would thaw credit markets, this student housing developer was making its biggest investment since going public in 2004.

With its $1.4 billion purchase of GMH Communities Trust earlier this year, American Campus expanded its balance sheet to allow it to self-fund future acquisitions, giving it the flexibility to move quickly and decisively when it identifi es new targets.

“Today, for American Campus and our sector, the acquisition of underperforming assets is the greatest opportunity, and that’s what GMH Communities Trust represented,” says CEO Bill Bayless. The transaction was the second-largest multifamily deal of the year, according to Real Capital Analytics.

The move also marks a coming of age for the student housing industry, which saw its fi rst sector-specifi c real estate investment trusts (REITs) emerge over just the past few years. “Until 2004, student housing had been viewed as an obscure niche within real estate and was not by any means a mainstream institutional investment,” says Bayless, pinning the change in investor mindset to the year American Campus went to market with its initial public off ering (IPO).

The purchase of GMH signifi cantly boosted American Campus’ market share. The fi rm now owns or manages 233 communities with 146,400 beds, eclipsing the portfolio size of fellow REIT Education Realty Trust, Inc., which owns or manages 41,329 beds across 69 properties.

The deal gives American Campus a presence in 39 new markets, as well as an opportunity to save on general and administrative costs and improve operational performance at the properties by boosting rents and occupancy rates, says Bayless. “It was a great transaction for us in that it not only had strategic benefi ts but also signifi cant value creation opportunity.”

The fi rm’s “enterprise value,” a measure that includes the value of a company’s outstanding debt as well as its equity, had grown to $2.3 billion in October from $350 million at the time of its IPO. “It has never been our objective to be the biggest [student housing operator], even though that has happened inadvertently,” says Bayless. “It has always been our objective to be the premier student housing company in the nation.”

He sees a major growth opportunity in the development of on-campus housing, an American Campus focus, as well as in the development or acquisition of assets within walking distance from campus. In his view, such properties tend to be insulated from the ups and downs of the overall economy and perform well as long as college enrollment is on the upswing.

“This year, even with the economy being what it was, our most expensive products that are located close to campus leased up about two months earlier than our least expensive products farther away,” he says. “So even in the down economy, students chose proximity to campus and higher-end product over aff ordable alternatives.”

With rents for student housing properties rising faster than at conventional apartments and college enrollment projected to grow by 11 percent between 2003 and 2013, it looks likely that American Campus will be sitting pretty for a while to come.