Post on 18-Dec-2015
General Body Meeting 10.13.11
Mutual Investment Club of Cornell
2
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
Mutual Investment Club of Cornell
3
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!
Mutual Investment Club of Cornell
4
News Updates
Mutual Investment Club of Cornell
5
TTM Update
Mutual Investment Club of Cornell
6
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
Mutual Investment Club of Cornell
7
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
Mutual Investment Club of Cornell
8
Financials Update
Mutual Investment Club of Cornell
9
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
Mutual Investment Club of Cornell
10
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
Mutual Investment Club of Cornell
11
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
Mutual Investment Club of Cornell
Annaly Capital
QuanTeam
Mutual Investment Club of Cornell
REITs
Investors
Lenders
REITsMortgage Backed
Securities
Borrows money at low rates
Lends money at
high yielding
rates
Mutual Investment Club of Cornell
REITs
Investors
Lenders
REITsMortgage Backed
Securities
Receives money at 1%
Lends money at
6%
Profit:Lending Profits -- Borrowing Costs6% -- 1% = 5%
Profit: 5%
Mutual Investment Club of Cornell
REITs
ProfitsShareholder
s
Shareholders
Shareholders
Shareholders
Shareholders
Dividends:Pays out 90% of their profits as Dividends to Shareholders
Dividends Yield: 15.5%
Mutual Investment Club of Cornell
Profits
Mutual Investment Club of Cornell
Mortgage Backed Securities
Mutual Investment Club of Cornell
Comparisons
Interest Rate Spread: 2.45%
Interest Rate Spread: 4.20%
Mutual Investment Club of Cornell
Comparisons
Interest Rate Spread: 2.45%
Interest Rate Spread: 2.23%
Mutual Investment Club of Cornell
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
Mutual Investment Club of Cornell
Operation Twist
Mutual Investment Club of Cornell
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
Mutual Investment Club of Cornell
Sovereign Debt Crisis
Mutual Investment Club of Cornell
Sovereign Debt Crisis
Mutual Investment Club of Cornell
Best of Breed
Ultra-Safe mortgage backed securities Insured by Government Fannie Mae, Freddie Mac, Ginnie Mae
Industry Leading Name Liquidity Public Awareness
Mutual Investment Club of Cornell
Analyst Valuations
Mutual Investment Club of Cornell
Proposal
Sell Every other Position in the Club and buy this stock ;)
Mutual Investment Club of Cornell
Derek CreadoreArsham MemarzadehMargaret Szczerbicki
Nick HosseiniAlex Friedman
American Campus Communities
Mutual Investment Club of Cornell
Company Summary
Name American Campus Communities Inc
Ticker ACC (NYSE)
Price $38.71 (10/12/11)
Market Cap. $2.69 Billion
52-Week High/Low $30.03 - $41.09
Mutual Investment Club of Cornell
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%
30
Mutual Investment Club of Cornell
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
31
Mutual Investment Club of Cornell
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
32
Mutual Investment Club of Cornell
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
33
Mutual Investment Club of Cornell
Industry Overview
College Type
2005-06 to 06-07 increase
06-07 to 07-08 increase
07-08 to 08-09 increase
08-09 to 09-10 increase
Public 5.1% 5.3% 5.2% 5.4%Private 5.0% 5.0% 4.8% 4.2%
34
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
Mutual Investment Club of Cornell
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
35
Mutual Investment Club of Cornell
Property Portfolio36
Own property in 37 states and parts of Canada
Majority of properties are in the Sun Belt
Mutual Investment Club of Cornell
Recent News
August 8, 2011 Beat analysts consensusSeptember 15, 2011 ACC to be added to the S&P MidCap
400 index
37
Mutual Investment Club of Cornell
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
38
Mutual Investment Club of Cornell
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
39
Mutual Investment Club of Cornell
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
40
Mutual Investment Club of Cornell
Growing College Population41
Fall
1990
Fall
1991
Fall
1992
Fall
1993
Fall
1994
Fall
1995
Fall
1996
Fall
1997
Fall
1998
Fall
1999
Fall
2000
Fall
2001
Fall
2002
Fall
2003
Fall
2004
Fall
2005
Fall
2006
Fall
2007
Fall
2008
Fall
2009
Fall
2010
Fall
2011
Fall
2012
Fall
2013
Fall
2014
Fall
2015
Fall
2016
Fall
2017
Fall
2018
Fall
2019
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
Enrollment in Post-Secondary Educational
Enro
llm
ent
(thousands)
Source: http://nces.ed.gov
Mutual Investment Club of Cornell
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
42
Mutual Investment Club of Cornell
Sources of Revenue
Wholly-Owned Properties Operations
(87.5%)
On-Campus Participating
Property Operations
(6.9%)
Third-Party Development
Services (2.7%)
Third-Party Management
Services (2.5%)
Resident Services (0.4%)
Mutual Investment Club of Cornell
Income Statement
2010 2009 2008 2007 2006
Total Revenues
344,991 309,590 235,413 147,135 118,953
Total Operating Expenses
(258,049) (243,678) (195,187) (119,968) (89,153)
Total Nonoperating Income (Expenses)
(61,281) (67,764) (52,610) (27,842) (26,072)
Income (loss) from income taxes and discontinued operations
(8,563) (10,608) (671) (1,011) 18,869
Net Income (loss)
17,098 (12,460) (13,055) (1,686) 22,597
(all values in thousands of dollars)
Mutual Investment Club of Cornell
2010 2009 2008 2007 2006
Operating Margin
25.2% 21.3% 17.1% 18.5% 25.1%
Net Profit Margin
5.0% -4.0% -5.5% -1.1% 19.0%
Income Statement Analysis
Mutual Investment Club of Cornell
Balance Sheet—Assets2010 2009 2008 2007 2006
Land 313,005 250,044 242,653 102,109 75,263
Buildings 2,177,780 1,825,915 1,706,184 768,551 579,906
Furniture, fixtures, and equipment
129,175 112,831 87,633 42,225 28,111
Construction in Progress
54,244 -- 63,715 104,540 56,958
Less accumulated depreciation
(240,360) (173,820) (113,352) (70,363) (46,041)
On-campus properties, net
62,486 65,690 69,302 72,905 76,688
Cash/Cash Equivalents
113,507 66,093 25,600 12,073 79,107
Investments and other assets
83,647 88,228 102,174 44,256 34,389
Total Assets 2,693,484 2,234,981 2,183,909 1,076,296 884,381
Mutual Investment Club of Cornell
Balance Sheet—Liabilities and Equity2010 2009 2008 2007 2006Secured Mortgage, Construction & Bond Debt
1,144,103 1,029,455 1,162,221 533,430 432,294
Secured Term Loan
100,000 100,000 100,000 -- --
Secured Revolving Credit Facilities
101,000 94,000 14,700 9,600 --
Capital Lease Obligations
911 2,314 2,555 2,798 2,348
Accounts Payable and Accrued Expenses
34,771 26,543 35,440 14,360 13,616
Other Liabilities 60,100 43,173 53,497 40,480 27,088Total Liabilities 1,440,885 1,295,485 1,368,413 600,668 475,346Total Equity 1,213,962 899,030 785,119 428,562 321,944Leverage Ratio 1.18 1.44 1.74 1.40 1.48
Mutual Investment Club of Cornell
Investing Activities
2010 2009 2008 2007 2006Cash Paid for Property Acquisitions
154,461 -- 11,287 42,760 69,697
Cash Paid for Land Acquisitions
16,050 7,385 3,226 10,445 --
Investments in Wholly-Owned Properties
76,854 114,729 139,570 131,820 81,597
Investments in On-Campus Properties
1,141 739 719 480 483
Purchase of Corporate Furniture, Fixture, and Equipment
2,182 606 2,178 486 986
Mutual Investment Club of Cornell
Contractual Obligations
Total 2011 2012 2013 2014 2015 ThereafterLong-term
$1,581,024 $422,213 $185,165 $129,874 $265,673 $218,868 $359,231
Owned Development projects
80,821 80,821 -- -- -- -- --
Operating leases
84,102 3,217 3,384 2,624 2,498 2,482 69,897
Capital Leases
960 668 292 -- -- -- --
Total $1,746,907 $506,919 $188,841 $132,498 $268,171 $221,350 $429,128
Plan to meet requirements through revolving credit line, selling properties, issuing common stock ($150M ATM Equity Program), utilizing cash flow from operations.
Mutual Investment Club of Cornell
Dividend History50
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%
Mutual Investment Club of Cornell
Q2 2011Financial Summary51
FFOM = “Funds From Operations – Modified”Interest coverage = (EBIT)/(Interest Expense)*Dollars in Thousands
Mutual Investment Club of Cornell
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
52
Mutual Investment Club of Cornell
Wholly Owned Property Results from Operations in 2Q 2011: $ in thousands
53
*-0.10% decrease in operating expenses due to tax appeals resulting in tax savings
Mutual Investment Club of Cornell
Portfolio Overview as of June 30th 2011
54
*Increases in occupancies across the board
Mutual Investment Club of Cornell
2011/2012 Leasing Status55
*Improvements in demand across the board.
Mutual Investment Club of Cornell
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
56
Mutual Investment Club of Cornell
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
57
Additional Owned On Campus Projects in the Pipeline:
Shows Strength of On Campus Owned Strategy…
Mutual Investment Club of Cornell
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
58
Mutual Investment Club of Cornell
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
59
Mutual Investment Club of Cornell
Multiple Analysis 60
ACC EDR CCG
Market Cap 2.69B 661.43M 309.44M
Profit Margi
n
Most Recen
t14.8% -32.4% -15.97%
2010 4.7% -35.2% -16.8%
2009 -3.8% -6.2% -6.3%
Share Price 38.71 9.13 10.08
EPS 0.84 -0.62 0.02
P/E 45.97 N/A (Negative) 560.00
P/E (Forward) 19.92 18.92 11.76
P/B 2.09 1.60 1.3352-Week
High 41.09 9.52 14.36
Mutual Investment Club of Cornell
Residual Income Model61
PARAMETERS FY1 FY2 LtgEPS Forecasts 1.78 1.94 9.30% Model 1: 12-year forecast horizon (T=12).Book value/share (last fye) 17.52 and a 5-year growth period.Discount Rate 7.0%Payout Ratio 90.0%Next Fsc Year end 2011Current Fsc Mth (1 to 12) 10.00Terminal Growth 3.5%Target ROE (industry avg.) 13.0%
Implied price (date adjusted) 43.60
Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Long-term EPS Growth Rate (Ltg) 0.0930 0.0930 0.0930Forecasted EPS 1.78 1.94 2.12 2.32 2.53 2.55 2.56 2.57 2.58 2.60 2.61 2.62Beg. of year BV/Shr 17.52 17.69 17.89 18.10 18.33 18.59 18.84 19.10 19.35 19.61 19.87 20.13Implied ROE 0.102 0.110 0.119 0.128 0.138 0.137 0.136 0.135 0.134 0.132 0.131 0.130Abnormal ROE 0.032 0.040 0.049 0.058 0.068 0.067 0.066 0.065 0.064 0.062 0.061 0.060required rate (r) 0.070 0.070 0.070 0.070 0.070 0.070 0.070 0.070 0.070 0.070 0.070 0.070discount rate 1.070 1.145 1.225 1.310 1.402 1.500 1.605 1.717 1.837 1.965 2.102 2.249PV of future Residual Income 0.52 0.61 0.71 0.80 0.89 0.83 0.77 0.72 0.67 0.62 0.58 0.54
Implied Price of $43.60
Mutual Investment Club of Cornell
RIM Assumptions + Sensitivity
62
Valuation Assumptions
Risk-free Rate 2.20%
Equity Risk Premium 5.77%
Beta (Adjusted) 0.83
Cost of Equity 6.99%
Terminal Grow th 3.50%
Capitalization Rate 3.49%
Valuation Date 10/12/2011
B/S Date 12/31/2010
Days Since 285
Portion of year elapsed 0.78
Partial Year Adjustment 105.42%
Shares Outstanding 69,530
$43.60 2.5% 3.0% 3.5% 4.0% 4.5%5.99% 50.38 53.91 58.87 66.31 78.76 Confidence6.49% 44.53 46.86 49.98 54.34 60.90 72%6.99% 39.97 41.55 43.60 46.33 50.15 7.49% 36.30 37.41 38.79 40.57 42.95 7.99% 33.30 34.08 35.03 36.23 37.76
Terminal Growth
Co
st o
f E
qu
ity
Mutual Investment Club of Cornell
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)
63
Mutual Investment Club of Cornell
Time to Buy?64
Look to buy around $36 range
Mutual Investment Club of Cornell
65
Thanks for coming by!