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General Body Meeting 10.13.11. Agenda. Announcements Various Recruiting Events News Updates TTM Update Unemployment, European Rate Cuts Volcker Rule Leak, Drexia , Occupy Wall Street Annaly Capital Mini-pitch ACC Real Estate Pitch. Recruiting Events.

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agenda
Agenda
  • Announcements
    • Various Recruiting Events
  • News Updates
    • TTM Update
    • Unemployment, European Rate Cuts
    • Volcker Rule Leak, Drexia, Occupy Wall Street
  • Annaly Capital Mini-pitch
  • ACC Real Estate Pitch
recruiting events
Recruiting Events
  • UBS: Intro to Global Capital Markets
    • 4:30pm – 5:30pm - Wednesday, October 26th
    • Phillips 219
  • Goldman Sachs: An Inside Look at Wall Street
    • 10:00am – 11:00am – Thursday, October 27th
    • Statler Hotel, Amphitheater
  • Morgan Stanley: Firmwide Presentation
    • 6:00pm – 7:30pm – Thursday, October 27th
    • Statler Hotel, Ballroom
  • NYC Trip
    • Fill out Survey!
unemployment
Unemployment
  • Unemployment rate holds steady at 9.1%
  • Non-Farm payroll increased by 103,000 exceeding expectations
  • July and August estimates were revised upwards
  • Senate killed Obama’s job bill, but President Obama will keep fighting
  • Initial jobless claims above 400K
european rating cuts
European Rating Cuts
  • Fitch downgraded Spain & Italy
  • “the intensification of the euro zone crisis”
  • ECB buying debt in secondary market
  • Spain and Italy passed austerity plans
  • Growth concerns
  • Elections in Spain on November 20
volcker rule
Volcker Rule
  • On Tuesday the FDIC unanimously approved an initial version of the Volcker rule
    • Limits proprietary trading at banks
  • Issues associated with the Volker Rule
    • Reduce revenue generated through trading
    • Constrain liquidity
    • It is difficult to enforce
    • Competitive Disadvantage
  • Impact:
    • Would hit GS and MS the hardest
    • 48% and 27% of total revenues respectively
  • Most people believed that this version of the Volcker Rule is too stringent, and won’t be passed
drexia bank bailout
Drexia Bank Bailout
  • Belgium plans to bailout Dexia Bank
    • Purchasing $5.4 billion in assets
    • Providing tens of billions of dollars in new guarantees
    • Passed a stress test three months ago
  • Triggered by other banks’ reluctance to lend to it due to its exposure to highly toxic entities ( Greece, Italy etc.)
  • Many European governments are reluctant to offer money to save the financial sector as they are already facing rising debts
  • This bank-rescue mission could be a model to save all the European banks from the risk of catastrophic meltdown and contagion
occupy wall street
Occupy Wall Street
  • Protests have been going on for the past few weeks in large cities, namely New York and Washington D.C.
    • Social inequality, corporate greed, corporate payments to lobbyists etc.
  • Has gained support from students, unions and some politicians
  • Very preliminary phase
    • Politicians response?
    • Follow-up
reits
REITs

Investors

REITs

Mortgage Backed Securities

Lenders

Lends money at high yielding rates

Borrows money at low rates

reits1
REITs

Lends money at 6%

Investors

REITs

Mortgage Backed Securities

Lenders

Profit:

Lending Profits -- Borrowing Costs

6% -- 1% = 5%

Profit: 5%

Receives money at 1%

reits2
REITs

Shareholders

Shareholders

Shareholders

Profits

Shareholders

Shareholders

Dividends:

Pays out 90% of their profits as Dividends to Shareholders

Dividends Yield: 15.5%

comparisons
Comparisons

Interest Rate Spread: 2.45%

Interest Rate Spread: 4.20%

comparisons1
Comparisons

Interest Rate Spread: 2.45%

Interest Rate Spread: 2.23%

thesis
Thesis
  • Annaly’s underlying business model has not been changed
    • Sovereign Debt Crisis has no effect on Annaly
    • Operation Twist has had a minimal impact on borrowing and lending rates
  • Vast selling indicates we are Technically Oversold
    • Fear has been unwarranted
reasons for price drop
Reasons For Price Drop
  • Fear that sovereign debt crisis will filter to the REITs
    • Liquidity will slow down
    • Costs of borrowing will rise dramatically
  • SEC Regulations
    • Chance that the SEC will place more regulations on the REITs
best of breed
Best of Breed
  • Ultra-Safe mortgage backed securities
    • Insured by Government
    • Fannie Mae, Freddie Mac, Ginnie Mae
  • Industry Leading Name
    • Liquidity
    • Public Awareness
proposal
Proposal
  • Sell Every other Position in the Club and buy this stock
    • ;)
derek creadore arsham memarzadeh margaret szczerbicki nick hosseini alex friedman

American Campus Communities

Derek Creadore

ArshamMemarzadeh

Margaret Szczerbicki

Nick Hosseini

Alex Friedman

thesis1
Thesis
  • Stagnant economy and weak job market encouraging more people to go back to school
  • School room & board costs are increasing at unreasonable levels causing students to house off campus
  • Largest REIT focused on residential student housing properties
  • Consistent dividend yield currently at ~3.50%
company overview
Company Overview
  • Develops, manages, and acquires student housing assets
  • Leader in third-party development and management of on-campus student housing – possess 50 on-campus projects
  • Developed over $2.8 billion in properties since 1996
  • The first publicly traded student housing REIT
company overview 2
Company Overview (2)
  • As of June 30, 2011, property portfolio contained 107 student housing properties with approximately 66,400 beds in approximately 21,200 apartment units
  • Over 40,000 beds acquired since 2005
business segments
Business Segments
  • Wholly-Owned Properties
  • On-Campus Participating Properties (ACE)
    • American Campus Equity (ACE) projects will have premier on-campus locations with marketing and operational assistance from the university
    • Subject university benefits by increasing housing capacity with minimal impacts to their credit ratios
  • Development Services
  • Property Management Services
industry overview
Industry Overview
  • On campus college housing prices have been constantly increasing
  • Very few REITS focused solely on campus properties

Source: Source: Collegeboard.org – Trends in College Pricing

competitors
Competitors
  • Campus Crest Communities Inc. (CCG)
    • 15,000 beds
    • Only are involved in off-campus housing
  • Education Realty Trust Inc. (EDR)
    • Properties in 23 states and total of over $2.4 billion in collegiate housing transactions
    • Currently owns about 25,400 beds
property portfolio
Property Portfolio
  • Own property in 37 states and parts of Canada
  • Majority of properties are in the Sun Belt
recent news
Recent News

August 8, 2011

  • Beat analysts consensus

September 15, 2011

  • ACC to be added to the S&P MidCap 400 index
strengths
Strengths
  • Short term lease: change w/ market rent increases
  • Little credit risk: leases backed by parents Fin aid
  • Properties 95.2% pre-leased for 2011/2012 yr
    • 98.2% occupancy rate forecast
  • Affected differently than other residential REITs by low interest rates
    • Traditional rent vs. buy decision
    • Students can only rent
    • Lower I.R. for ACC means lower borrowing costs
weaknesses
Weaknesses
  • Limited land directly surrounding campuses
  • Biggest competitors (universities) can avoid RE taxes and borrow at lower rates
  • Housing demand impacted by universities
    • Number of students accepted to university
    • Requiring that a certain class to live on campus
  • Greater tenant improvement costs as college students usually trash the places they live in
opportunities
Opportunities
  • Strong backlog of projects
    • As of 6/30/11, $456.6M in projects under construction, all scheduled for completion by Fall 2012
  • Continuous growing college enrollment, stimulated as economy remains weak
  • Operation Twist and the Feds continuous policies should keep long term I.R. low for a decent while
growing college population
Growing College Population

Source: http://nces.ed.gov

threats
Threats
  • Trend towards online schools
  • Private construction of on-campus housing from universities
  • Availability of financing in tough economic environment to continue growing portfolio of properties
income statement
Income Statement

(all values in thousands of dollars)

contractual obligations
Contractual Obligations
  • Plan to meet requirements through revolving credit line, selling properties, issuing common stock ($150M ATM Equity Program), utilizing cash flow from operations.
dividend history
Dividend History
  • AFFO = net income+deprecation-recurring CapEx
  • AFFO (2010) = 16,210k + 80,253k - 10,136k
  • AFFO (2010) = 86,327k
  • Dividend payout = 78,588k / 86,327k = 91%
q2 2011financial summary
Q2 2011Financial Summary

FFOM = “Funds From Operations – Modified”

Interest coverage = (EBIT)/(Interest Expense)

*Dollars in Thousands

q2 financial summary highlights
Q2 Financial Summary Highlights
  • 48% increase in Q2 2011 FFOM compared to Q2 2010 FFOM
    • Revenues from 14 joint venture properties ACC acquired from Fidelity in late 2010
    • Continued strong performance from same store properties (existing properties opened for over a year)
  • 17% increase in interest coverage ratio for 2Q 2011
    • Improvement in the GMH portfolio (ACC acquired GMH in June 2008)
    • Continued payoff of maturing fixed rate debt
      • Paid off $71M in debt with cash on hand
wholly owned property results from operations in 2q 2011 in thousands
Wholly Owned Property Results from Operations in 2Q 2011: $ in thousands

*-0.10% decrease in operating expenses due to tax appeals resulting in tax savings

portfolio overview as of june 30 th 2011
Portfolio Overview as of June 30th 2011

*Increases in occupancies across the board

2011 2012 leasing status
2011/2012 Leasing Status

*Improvements in demand across the board.

q2 acc on campus owned development efforts
Q2 ACC On Campus Owned Development Efforts
  • Commenced the 864 bed Logo Village project at University of New Mexico
  • 144 bed University Village Northwest Project at Prairie View A&M was completed and fully leased for Fall 2011
  • 978 bed Portland State University is under construction and remains on track for fall 2012 delivery
q2 acc on campus owned development efforts continued
Q2 ACC On Campus Owned Development Efforts Continued…
  • Awarded an On Campus Development Award at Drexel University and are in predevelopment of an 850 bed community scheduled for a Fall 2013 delivery

Additional Owned On Campus Projects in the Pipeline:

Shows Strength of On Campus Owned Strategy…

3 rd party and off campus construction efforts during q2 2011
3rd Party and Off Campus Construction efforts during Q2 2011
  • Construction commenced/continued at University of Wyoming, Edinboro University, Cleveland University, and Illinois State
  • Initiated predevelopment of graduate student housing at Princeton University with expected Fall 2013 delivery
  • Off Campus development projects at University of Houston and San Antonio State are on track for completion in 2012
overall signs from q2 2011
Overall Signs from Q2 2011
  • Advanced current relations and awards
  • Developed a solid pipeline of institutions expressing interest in both public and private partnerships
  • Continue to deliver new or redeveloped On Campus Housing assets
  • 16% increase in portfolio bed count from current and planned projects will add strong future portfolio yields
residual income model
Residual Income Model

Implied Price of $43.60

recommendation
Recommendation
  • 45 shares @ $36 for $1,620
  • Hold off until a pull back
  • Stock has risen 6.3% since initially selected
  • Price target of $43.60 represents 12.5% premium from current stock price
  • Mean analyst target of $40.29 (12 analysts)
time to buy
Time to Buy?
  • Look to buy around $36 range