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Campus housing owner can survive digital migration, analysts say
ANALYSTS expect that real estate investment trust (Reit) American Campus Communities will still be able to attract students to off-campus housing, even as pandemic fears prompt more US universities to switch to online or hybrid classes.
"Kids want the college experience, and they don't want to sit at home," Piper Sandler analyst Alex Goldfarb said in an interview. "They want to be at school with their friends."
The debate around how to structure higher education this autumn is critical for American Campus, which runs housing properties on and near colleges.
Goldman Sachs estimates that more than 45 per cent of its revenue comes from universities in Texas, Arizona and Florida - which have all been recent hotspots for Covid-19.
Universities face immense pressure to reopen in order to offset the negative financial impact from missed tuition and sports revenue.
As at July 19, more than half of US colleges are still planning in-person classes for the autumn semester, and 32 per cent are proposing a hybrid model, said The Chronicle of Higher Education.
Wall Street will be closely watching American Campus's earnings on Monday after the market close for signals of how it might be impacted.
While shares have fallen 29 per cent this year - underperforming other real-estate stocks - analysts say the decisions being made by schools are fluid, and the outlook may not be as bad as it seems.
Pre-leasing data will be especially key. As at May 31, 82.6 per cent of the company's properties were pre-leased compared with 84.9 per cent a year ago.
Capital One's Neil Malkin expects some students will choose to live on-campus if the option is available.
Many schools have already said students will not be allowed back to on-campus housing after Thanksgiving break.
But some are looking to partner with off-campus housing to make dormitories less dense, which could benefit American Campus, he said.
And since approximately 86 per cent of American Campus's housing is apartment-style, it allows for easier sanitation and social distancing, Piper Sandler's Mr Goldfarb added.
With only four to five weeks left before semesters start, schools are "running out of time," said Evercore ISI analyst Steve Sakwa. BLOOMBERG