According to Bilerman, the company does benefit from positive student housing trends, including favorable demographic and enrollment growth. The company also boasts a strong balance sheet and an "attractive" development pipeline. However, the analyst stated that since the stock has outperformed over the past year, its valuation is "generally fair" on a multiple and implied cap rate basis.
Education Realty Trust's stock has gained more than 20 percent since the start of 2016 and more than 60 percent over the past year.
Specifically, the stock is trading at a premium to American Campus Communities, Inc. ACC, a $6.7 billion peer, in terms of 2017 adjusted funds from operations (AFFO) of 27x versus 24x. In addition, Education Realty Trust is trading at a premium in terms of multiple and implied cap rate compared to multifamily REITs.
The stock's already full valuation, coupled with a few near-term risks, including final preleasing results and the impact of 2017 supply, is keeping the analyst on the sidelines despite the existence of several catalysts for continued outperformance.
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