During the pandemic's early days, many students headed home to shelter in place as their schools pivoted to online learning. That caused some financial stress among some of the REIT's tenants, leading it to offer rent refunds or relief when it couldn't collect from some tenants.
However, that impact seemed short-lived as most students returned for the fall semester, even if their school didn't hold in-person classes. Overall, demand for student housing was strong during that period, as many chose near-campus housing solutions like those provided by the REIT instead of cramped on-campus residence halls.
As a result, the company noted that the velocity of its lease-up volumes for the fall semester of last year was more than 3% above the prior year, with a rental growth rate trending toward its targeted level. Meanwhile, it saw even stronger demand in the spring, as it signed 50% more leases than the previous year. Bayless pointed out on the earnings call that "all facets of our business were exceeding our internal expectations."
Transitioning back to normalcy
As good as the current academic year has been for the REIT, the upcoming one could be even better. Bayless said the company is "cautiously optimistic" about this fall because "the vast majority (of its university partners) are indicating that admission applications are up over the last year, and many are projecting strong enrollment growth for fall 2021." Further, he noted that "there is also incrementally positive news in terms of universities planning to return to in-person classes for fall of 2021."
Bayles also said the company has seen accelerating leasing for the fall semester of 2021 now that students have returned from winter break. Further, he believes there will be an even more significant acceleration as the current semester wraps up and students start making fall plans.
These trends bode well for the student housing industry, given current industry fundamentals. The sector isn't bringing much new supply online, as deliveries will be flat with last year, which was the lowest in the past decade. That means the REIT could enjoy even higher occupancy levels, which could drive rent growth.
Given that expectation for tight supply and the anticipated return to normalcy this fall, many of the REIT's university partners "are now beginning to refocus their efforts to modernize on-campus housing," according to Bayless. That could lead to a de-densification of residence halls to give students more space for physical distancing.
This trend could open new opportunities for American Campus to partner with institutions to develop additional housing solutions. It's currently tracking more than 60 potential opportunities that could drive future growth.
An interesting investment opportunity ahead of the return
Shares of American Campus Communities have steadily recovered after plunging during the pandemic's early days due to its uncertainty. However, they're still down by about 10% from where they entered 2020, even though this academic year has been quite strong.
With the 2021 school year looking even better, and the potential for growth ahead, the REIT is starting to look like an intriguing one to consider buying, since it appears higher ed students will return to the classroom this fall.