Why Buy? The catalyst is making money on a temporarily depressed stock price. The share price is about $5.35 per share and the REIT has an approximate REIT book value of $7.56 per share
This is a REIT with a suspended dividend payout. The company is in a transition period to determine what assets to keep and what assets to dispose of. The below info discusses the plans.
This purchase has a higher risk due to the suspended dividend. The current price offers a higher return if the company is sold; certain assets are sold; and what the future dividend may be.
Patience is required while the key shareholders work to turnaround the entity, maximize shareholder value, and take advantage of the low current yields.
Campus Crest Communities (NYSE: CCG) was founded in 2004 and is a diversified real estate investment trust (REIT) that specializes in the ownership and management of student housing properties. Additionally, the company offers student housing services and construction services for the development of new student housing. Campus Crest utilizes a vertically integrated platform that leverages the company’s assets to lower operating costs through smarter construction and more efficient management. As of March 31, 2015, Campus Crest had a portfolio of 81 properties with 43,948 beds.
Campus Crest is a compelling potential turnaround play in the ever growing, ever more expensive and rising demand market for student housing across U.S. college campuses.
After a lackluster performance in 2014, Campus Crest management discontinued the company’s development and construction business segment and disposed of undeveloped land parcels in Alabama, Arizona, California, Florida, Michigan, North Carolina, Texas and Washington. Shortly after, the company synergistically partnered with Campus Evolution Villages LLC, a student housing’ management company. At the time of the announcement of the partnership, Campus Evolution Villages owned 22 properties with 10,000 beds. Campus Crest also began turnaround discussions with investor Clinton Group, which is a significant CCG stakeholder.
Campus Crest announced several changes to its management team following suggestions from Clinton Group. David Coles was named interim Chief Executive Officer, John Makuch was named interim Chief Financial Officer, Scott Rochon was named Chief Accounting Officer and Aaron Halfacre continued to serve as President and Chief Investment Officer. Campus Crest also announced the appointment of Raymond Mikulich, Randall Brown and Curtis McWilliams to its Board of Directors. Changes in the leadership team were part of the company’s plan to grow operating margins, improve profits and increase shareholder value. Campus Crest now has eight independent directors on its Board. McWilliams, Mikulich and Chairman Kahlbaugh formed the Transaction Committee to explore strategic alternatives for Campus Crest.
Campus Crest shares ended the week of September 25, 2015, at $5.35 per share, down about 27% year-to-date. The company’s stock has experienced extreme volatility over the last 5 years, falling about 57% to near all-time lows. At $5.35, shares are trading close to the low-end of the company’s 52-week price range of $4.68 – $8.05 per share and are well below the April 2013 high of $14.24 per share. At $5.35 per share, Campus Crest has a market capitalization of $346.5 million. Campus Crest has an average consensus analyst price target of $7 and a high price target of $8.50 per share, representing upside of about 31% and 59%, respectively, over the next twelve months.
Campus Crest suspended its dividend payments to shareholders in April 2015. The company last paid a quarterly dividend of $0.09 per share on January 29, 2015. The decision to suspend its dividend payments was largely influenced by the need to conserve capital for operating needs and recommended by investment bank Moelis & Co. which has been hired to handle strategic decisions that would help the company execute a successful turnaround. On average, Campus Crest paid an annual dividend of $0.53 per share over the last 5 years. Currently, Campus Crest is focused on increasing its funds from operations (FFO, a key REIT measure) and management plans to reinstate dividends after it successfully executes its turnaround and boosts available cash to where ongoing future dividends can be assured with greater confidence. Historically the company has offered an impressive yield that was sizably higher than its main competitors EdR (EDR) and American Campus Communities Inc. (ACC).
Through an 8-K filing with the SEC, Campus Crest confirmed a delay in the filing of its quarterly 10-Q report for the quarter ended June 30, 2015. The company previously had delays in its 10-Q for the quarter ended March 31, 2015, and 10-K for the year ended December 31, 2014, while trying to accurately account for the value of the acquisition of Copper Beech Townhome Communities (the transaction closed on January 30, 2015). Per NYSE regulations, Campus Crest has until February 17, 2016, to file its 10-Q for the quarter ended June 30, 2015.
For the three months ended March 31, 2015, Campus Crest reported total revenues of $40.3 million, up approximately 63% from $24.7 million in the year-ago quarter. The company reported an operating loss of $9.7 million due to higher SG&A and depreciation/amortization expenses. The company reported an operating loss of $9.7 million that was offset by a gain of $29.4 million from asset sales. For its first quarter, Campus Crest had net income of $12.84 million of which $9.8 million was available to common shareholders with earnings of $0.14 per diluted share.
Recently, Campus Crest received good news from the Corvallis City Council which voted 6 to 3 to clear ambiguities related to access and transportation issues with the company’s plans to build a 25-acre student housing complex on a 95-acre parcel for students attending Oregon State University. Campus Crest still needs approval from the city before it starts the project but has agreed to donate 15 acres towards environmental conservation and will pay maintenance costs for the land parcel for the next five years.
Campus Crest stock has fallen over the last few years due to poor management decisions. Student housing properties are unique assets, which require careful hands-on and detail-oriented management. From 2010 to 2014, the company’s portfolio of properties grew from 27 to 80; while ambitious, this rapid expansion stretched management capacity and led to excessive leverage and cash flow constraints.
Discount to Book Value
The company’s decision to overhaul its senior leadership and add more independent directors to its Board is a positive sign for investors. The company now aims to explore all strategic options in order to return value back to shareholders. Campus Crest is still in the beginning stages of a turnaround, which is not yet reflected in the price of its shares. At $5.35 per share, Campus Crest is currently trading at a discount of about 29% to book value $7.56 per share making the REIT very attractive to investors with some stomach for risk. Moreover, Wall Street analysts are confident that new management is on the right path towards a solid turnaround and this is reflected in their high price targets over the twelve months.