ACC’s Mixed Securities Offering
On March 16, 2009, American Campus Communities Inc. (ACC) filed with the Securities and Exchange Commission to sell an undisclosed amount of mixed securities from time to time. Don’t bother looking on Yahoo or Google for this type of news - you won’t find it. This is not the type of PR that they want you to know about. You can download the entire document from ACC’s website HERE.
According to the prospectus, the mixed securities offering includes common and preferred stock, debt securities and warrants. The net proceeds from the sale of the securities for general corporate purposes, which may include the repayment or refinancing of debt, property acquisitions and development, working capital, investment in financing transactions and capital expenditures.
How successful will they be? P.T. Barnum said, “There’s a sucker born every minute.” Therefore, I don’t doubt that they will find some fools to buy the common shares. However, if everyone read and understood the prospectus, I doubt ACC would be so lucky.
Here is a screengrab of page 15 of the prospectus:
CLICK TO ENLARGE
The information shows that the ratio of earnings to fixed charges for 2007 and 2008 were .83:1 and .72:1, respectively. A ratio of earnings to fixed charges that is less than 1 is NOTgood. It is even more troubling in ACC’s case since the ratio got worse in 2008.
As I have told you before, ACC has a very high and unsustainable cost structure. When you look at footnote #1, you see that ACC discloses:
“Our earnings were INADEQUATE to cover fixed charges and the amount of the deficiency (in thousands) was $16,132, $6,150, and $3,976 for the years ended December 31, 2008, 2007 and 2004, respectively.” [emphasis added]
Like I said, regardless of this information somebody will buy the stock. They will think that dorms are a foolproof business so the stock must be foolproof as well. What they don’t understand is that no business is foolproof when the numbers can’t pencil.
I doubt ACC will be as lucky in the debt markets since debt markets tend to be a bit smarter. However, I never cease to be amazed by the idiocy of the markets and the corruption of brokers.
I’m going to remind everyone that I’m predicting ACC will either: (1) cut the dividend to approximately 26¢ per share or (2) amend its debt covenants. When this happens, don’t say I didn’t tell you so.
Don’t be a fool.
March 26th, 2009 at 11:41 pm
They have to raise money this year for sure. They have 373M in debt obligations due this year and revenue was only 235M last year and expected to be 270M this year which I don’t think will happen as rents are much lower and students can always find cheaper housing like live at home. That leaves them 100M short and cutting a dividend to nothing will still leave them 50M short so they will have to sell at least 50M in shares minimum because I didn’t factor in the cost of operating so it’s more like they have to raise more like over 100M plus and with market value of 800M that is at least 12% dilution but I figure they will raise more for a cushion. So you either way, you’re right.
March 30th, 2009 at 4:46 pm
yes, but looking on the bright side: if the dividend is cut it will make shorting the stock less expensive.