American Campus Communities, Inc. (NYSE: ACC) is one of the largest owners, managers, and developers of high-quality student housing properties in the United States. The company has a diversified portfolio of 166 properties with approximately 111,900 beds across the country, serving students at top universities. Despite the challenges posed by the COVID-19 pandemic and the current macroeconomic environment, ACC has demonstrated its resilience and ability to adapt to changing market conditions.

Business Overview

ACC is a fully integrated, self-managed, and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing, and management of student housing properties. The company's property portfolio consists of 126 owned off-campus student housing properties, 34 American Campus Equity (ACE®) properties operated under ground/facility leases, and six on-campus participating properties (OCPPs) operated under ground/facility leases with university systems.

ACC's properties are typically highly amenitized, differentiated student housing communities located in close proximity to university campuses with high barriers to entry. The company's strategy is to identify existing or development opportunities in markets projected to experience substantial increases in enrollment and/or are underserved in terms of existing on-campus and off-campus student housing.

Financials

For the full year 2021, ACC reported annual net income of $33,284,000, annual revenue of $942,409,000, annual operating cash flow of $334,795,000, and annual free cash flow of $265,838,000. These figures demonstrate the company's ability to generate consistent financial results, even in the face of the pandemic's challenges.

In the first quarter of 2022, ACC reported total revenues of $274,306,000, a 17.6% increase from the same period in 2021. This growth was driven by a 15.8% increase in owned properties revenue and a 19.4% increase in on-campus participating properties revenue. The company's net income for the quarter was $42,720,000, a significant improvement from the $15,985,000 reported in the first quarter of 2021.

Quarterly Performance and Outlook

ACC's strong first-quarter performance was primarily due to the continued normalization of operations at its owned properties, a decrease in COVID-19-related concessions, and increases in occupancy and rental rates for the 2021/2022 academic year. The company also benefited from the recommencement of the Disney College Program in 2021, which contributed to the growth in on-campus participating properties revenue.

For the full year 2022, the company expects to see a moderation in sales declines across many categories, as demand headwinds in certain markets persist. ACC is also on track to achieve more than $20 million in cost savings this year from its multi-year $60 million cost reduction program. The company anticipates full-year 2022 free cash flow of approximately $130 million and a year-end consolidated leverage ratio of approximately 3.0x to 3.2x.

Owned Development and Third-Party Services

ACC is currently in the process of constructing a ten-phase housing project under its ACE® structure for the Walt Disney World® Resort, with scheduled phase deliveries from 2020 to 2023. As of March 31, 2022, the company had completed construction on six full phases and one partial phase of the project within the targeted delivery timeline, with the remaining phases anticipated to be delivered in 2022 and 2023.

Through one of its taxable REIT subsidiaries, ACC also provides development and construction management services for student housing properties owned by colleges and universities, charitable foundations, and others. As of March 31, 2022, the company was under contract on six third-party development projects that are currently under construction, with fees totaling $27.7 million and approximately $12.8 million remaining to be earned.

Geographic Diversification and Revenue Breakdown

ACC's property portfolio is geographically diversified, with properties located across the United States, serving students at top universities. The company's revenue is primarily generated from its owned properties, which accounted for 92.5% of total revenue in the first quarter of 2022, and its on-campus participating properties, which contributed 3.9% of total revenue.

The company's third-party development services and third-party management services segments contributed 2.5% and 1.1% of total revenue, respectively, in the first quarter of 2022. The increase in third-party development services revenue was primarily due to the commencement of construction of the Family and Graduate Housing project at Massachusetts Institute of Technology, which contributed $4.8 million of revenue during the quarter.

Liquidity

As of March 31, 2022, ACC had cash and cash equivalents of $87,656,000 and total debt of $3,509,626,000, resulting in a consolidated leverage ratio of 3.7x. The company's liquidity position is further strengthened by its $1.0 billion unsecured revolving credit facility, which had full availability as of the end of the first quarter.

ACC's debt structure is well-diversified, with 84.8% of its total debt being unsecured and a weighted average maturity of 5.1 years. The company's interest coverage ratio was 1.31x for the first quarter of 2022, demonstrating its ability to service its debt obligations.

Risks and Challenges

Like any real estate investment trust, ACC faces various risks and challenges, including changes in university admission or housing policies, the availability and terms of financing, the ability to manage growth and expansion into new markets, and the impact of economic conditions on student enrollment and housing demand.

The company is also exposed to the risks associated with the development and construction of student housing properties, as well as the potential for impairment of its long-lived assets. Additionally, ACC's business is subject to various legal and regulatory requirements, which could change and adversely affect its operations.

Conclusion

Despite the challenges posed by the COVID-19 pandemic and the current macroeconomic environment, ACC has demonstrated its resilience and ability to adapt to changing market conditions. The company's diversified portfolio, strong liquidity position, and focus on cost management have enabled it to navigate the uncertain landscape and deliver solid financial results.

Looking ahead, ACC remains well-positioned to capitalize on the growing demand for high-quality student housing, with its strategic focus on developing and managing properties in close proximity to top universities. The company's continued investment in owned development projects and third-party services further strengthens its competitive position and diversifies its revenue streams.

As an analyst, I believe ACC's long-term growth prospects, coupled with its prudent financial management, make it an attractive investment opportunity for investors seeking exposure to the student housing market.