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Student Housing REITs: The End of an Era or a Temporary Farewell?

CEO Khai Intela
Image source: svetikd/E+ via Getty Images This article is an abridged version of the original report published on Hoya Capital Income Builder Marketplace on April 30th. REIT Rankings: Student Housing Image source: Hoya Capital Over...

Friends at college dorm room Image source: svetikd/E+ via Getty Images

This article is an abridged version of the original report published on Hoya Capital Income Builder Marketplace on April 30th.

REIT Rankings: Student Housing

Student housing REITs Image source: Hoya Capital

Over the past year, student housing has experienced a rapid recovery and a brighter outlook. Despite ongoing challenges related to COVID-19 and enrollment trends, the effects of rising rents have outweighed these obstacles. Recently, Blackstone acquired American Campus Communities (ACC), marking the end of publicly traded student housing REITs. This acquisition follows previous acquisitions by Greystar and Harrison Street.

Student housing REITs Image source: Hoya Capital

American Campus, which went public in 2004, has been a pioneer in institutional student housing ownership and development. Other publicly traded real estate asset managers, such as Brookfield Asset Management, also own student housing portfolios. Additionally, there are several apartment REITs and institutional owners of student housing, including Harrison Street, The Scion Group, Greystar, The Collier Company, and TPG Real Estate.

Institutional Student Housing Portfolios Image source: Hoya Capital

Student housing has emerged as an institutional asset class in recent years due to its counter-cyclical nature and unique return profile. The National Multifamily Housing Council estimates that approximately 8.6 million students in the United States rent housing near their campuses. While some students live in on-campus dormitories, a significant portion resides in purpose-built off-campus housing, which offers more affordable options and suitable amenities.

Student housing vs apartments 2019 Image source: Hoya Capital

American Campus owns a portfolio of approximately 112,000 student housing beds, primarily focused on highly-selective flagship universities in Sunbelt markets. As part of their strategic portfolio refinement, they have sold non-core assets at smaller universities, further optimizing their holdings. Prior to the acquisition announcement, ACC had outperformed the Vanguard Real Estate ETF by about 1.5 percentage points annually.

End of Student Housing REIT Era - For Now

Blackstone M&A Image source: Hoya Capital

Given the significant amount of private institutional capital targeting student housing assets, ACC was added as a "Strong Buy" to the REIT Focused Income Portfolio earlier this year. Blackstone's recent $12.8 billion acquisition bid for ACC at a healthy premium represents a successful outcome for investors. This move is part of Blackstone's ongoing acquisitions strategy, which includes acquiring residential, industrial, and data center REITs.

Blackstone overview Image source: Hoya Capital

While Blackstone's non-traded REIT (BREIT) has rapidly grown its portfolio, raising concerns about their fee structure and lack of liquidity, the shift back to publicly listed REITs seems inevitable. Non-traded REITs have faced regulatory scrutiny due to their high fees, lack of transparency, and conflicts of interest. The volatility and transparency of public REITs make them a preferable option for investors.

Blackstone REIT 2022 Image source: Hoya Capital

Student Housing Fundamentals

This report will likely be our final quarterly student housing report until the tides shift and these portfolios return to the public markets. Nonetheless, it's crucial to monitor industry trends due to their parallels with the broader residential REIT sector. Despite COVID-related challenges and enrollment headwinds, student housing assets have seen unprecedented rent growth. Pre-leasing for the Fall 2022 semester has shown strong occupancy rates and increased rent growth compared to previous years.

Student housing leasing Image source: Hoya Capital

Enrollment growth rates at top universities are now higher than pre-pandemic levels, signaling a positive future for student housing. This recovery is reflected in American Campus' Q1 results, with strong enrollment trends and limited supply growth. The company's same-store Net Operating Income (NOI) and revenues have experienced significant growth, affirming a positive outlook for the sector. Student housing's recovery aligns with the robust performance of the residential REIT sector as a whole.

American Campus Core FFO Growth Image source: Hoya Capital

It's Not Goodbye - It's See You Later?

Student housing modernization Image source: Hoya Capital

The acquisition of American Campus by Blackstone marks the end of an era for publicly traded student housing REITs. However, we anticipate that market dynamics will shift in favor of publicly listed REITs compared to their non-traded counterparts. We will continue to monitor the student housing industry, expecting an eventual reunion of these portfolios in the public markets.

High Dividend Yield Index Image source: Hoya Capital

For detailed analyses of all real estate sectors, including apartments, homebuilders, and more, visit our website. Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. As of the publication date, Hoya Capital holds all components of the Hoya Capital Housing 100 Index and the Hoya Capital High Dividend Yield Index.