Elevated inflation is generally not a positive catalyst for the stock market, but real estate is one sector that can hold up better than most. And one stock that could even thrive in a high-inflation environment is American Campus Communities (ACC), a real estate investment trust (REIT) specializing in student housing. In this Fool Live video clip, recorded on Dec. 16, Fool.com contributor Matt Frankel explains to fellow Fool.com contributors Jason Hall and Marc Rapport why he's such a fan.
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Matt Frankel: One I like right now is American Campus Communities, you've heard we talked about this on shows before. But I think in the context of inflation, it's worth mentioning again and I have some visual aids for this. I wasn't as prepared otherwise -- Jason always has like 25 different slide shows. Here's one thing, American Campus Communities is a real estate company that are focused on student housing. They have the properties that I wish I would've lived in when I was in college.
Jason Hall: Tell me about it.
Frankel: Not only do the college students not really care about recessions, I want to say, they really don't. Demand for higher education actually picks up when economies get tough. Let me show you this. You know what the biggest surge in college enrollment of the past 30-years was?
Marc Rapport: Vietnam War. I know that's more than 30 years.
Frankel: That is more than 30 years.
Rapport: Oh, my God. Never mind.
Frankel: It was right after the economy almost collapsed in 2009.
Hall: Yeah.
Frankel: This is a chart of college enrollment that the light blue is public universities, the dark is private. If you look, 2008, 2009, 2010 that was the biggest spike and enrollment in colleges in the US in the past 30 years. The reason is there's a lot of uncertainty in the economy. If you see unemployment start to tick up, things like that, you will see people want to go back-to-school. It's great for university enrollment. In good times, it's not like they just completely fall off, it just goes right back to where it was before essentially. A lot of resilient demand for college enrollment.
There's a massive addressable market opportunity. While I'm sharing my screen, I'll show you that. This is American Campus Communities' addressable market. There are 7.1 million students that go to the schools that it targets. Of those, 111,000 are currently living in their communities. That is 1.5% of their addressable market. It's a very fragmented opportunity. The top 25 owners of student housing have less than 7% of the market. That's a pretty big opportunity. Like I said, it's a recession-resistant business and they have the power to raise their prices frequently to keep up with inflation. If inflation is 7% next year, they can raise the prices of their properties by 7% for the next incoming class. They'll pay it because the business is always in demand. Guys, any thoughts on that one?
Hall: Yeah. Matt, you know what, this is one that I've been questioning for some time. But the thing that's brought me around to it really as highlighted by what you've talked about, is just the resilience of the business and thinking about this specific space, they basically get the rents every year. The impact of inflation and their ability to quickly adjust and capitalize on that is just about unparalleled in just about anywhere in the REIT space.
Rapport: I wonder about this in the market I live in. You see so many players jumping into that. I mean, and I just wonder if there's going to be an oversupply, and how that could affect a stock market.
Frankel: In full disclosure, Mark and I live in the same market. Right near the University of South Carolina. If you walk from our office space to the University of South Carolina, you would probably past 10 different purpose-built student housing communities. It's a very fragmented market that which creates a lot of opportunities for the big players that do really well to pick up share. American Campus Communities actually does not have a big presence in our market.
It creates a lot of opportunities for them to acquire properties that may not be living up to their potential because the operator might not be as experienced or good at it. But there are a lot of this and for good reason. I mean, like I said, these are the places I wish I would've lived in college. They are priced cheaper than the average on-campus dorm. It's a product that sells itself. That's why demand is off the charts for these. If I had a cheaper option that looked like one of their properties when I was in college, I would never have lived on campus. A lot of other people feel the same way. It's a resilient company that also has a big growth opportunity, which is a rare and winning combination.
