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Wednesday September 30, 2009
Education Realty (EDR): Ivy league income
In his The Cash Machine, he looks to Education Realty Trust (NYSE: EDR), a real estate investment trust that provides high-quality student housing throughout the US. "While it's still early to call a bottom for real estate in a number of regions -- especially in commercial properties -- one thing is for sure: Parents will give their right arms to send their kids to great colleges. "There is a stealth bull market for apartment growth in major college towns, and rents are only going to rise in the years to come as the broader economy rebounds. 
"So if there were a definition of bulletproof real estate, investing in college apartments would come to mind. It's a powerful demographic trend, and one worth investing in. "Founded in 1964 and based in Memphis, EDR is one of the largest owners and operators of collegiate student housing communities in the U.S. Currently, EDR owns and manages 65 communities in 21 states. "With the strength of the collegiate housing market, EDR has posted solid results in recent quarters. Most recently, the company announced that second-quarter FFO earnings of 22 cents per share, which was two cents higher than expectations. "In addition to posting better-than-expected numbers, EDR also announced the closing of its public share offering, with 28,175,000 shares purchased. "From the sale, EDR received about $116 million in proceeds. For the sale, shares were priced at $4.35. Now, the stock is trading back around $5 on follow-on buying. Now that's a successful secondary offering. "In regards to dividend, EDR is not subject to federal corporate income tax, as long as it distributes at least 90% of its taxable income to shareholders -- since it is structured as a REIT. So EDR pays a quarterly dividend of $0.1025 per share, or 41 cents per year. That translates to an 8.2% yield. "For a REIT netting 22 cents for the quarter, it's easy to see how they can support a dividend that is half as much. And the fact that EDR affirmed its outlook for the balance of 2009 signals that forward dividend payments are good money, a prerequisite of our recommendations. "Any high-yield income-generating stock that beats estimates, pays out its dividend, conducts a 28-million-share secondary offering and trades higher has my full attention. "Going forward, I believe EDR's FFO will continue to improve, making the current 8.2% dividend yield very attractive for purchase." |
News Flash
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"All across America, college town populations are rising much faster than practically any other real estate market; that's because enrollments on a national basis are on a steady rise," says income expert