Stripnomics

Others are finally starting to catch on to ACC’s financial troubles. The Motley Fool recently published an article titled “5 Deathbed Stocks” that discusses just a few of the company’s problems.

I am eagerly awaiting ACC to announce a dividend cut. The announcement may come at any time. I believe their debt covenants will require a cut. Read my analysis HERE.

If ACC does not cut the dividend, I will be very suspicious but not surprised. I know that GMH Communities Trust, the company that ACC acquired last year, liked to play dividend games. Here is an excerpt from a case summary from the Stanford Law School Securities Class Action Clearinghouse for the case of Iris Martin, et al. v. GMH Communities Trust, et al.:

“The original complaint alleges that defendants, GMH Communities Trust and certain of its officers and directors, disseminated false and misleading financial statements in a scheme to inflate the earnings of the Company and issued dividends in violation of loan covenants in order to drive the price of its stock higher. The higher stock price allowed the Company to sell a secondary offering in October 2005 on more favorable terms. Defendants portrayed the Company as a growing real estate investment trust in a particular niche market, student and marketing housing and military housing, paying high dividends. Unbeknownst to the market, the Company’s strong earnings were the result of accounting fraud. As part of the Company’s closing of its books on fiscal year 2005, GMH’s chief financial officer wrote to the Audit Committee indicating that there were problems with the “tone at the top” of the Company’s management. In response to the letter, the Audit Committee conducted an investigation which indicated, among other things, material weaknesses in internal controls, pressure by key executives on the accounting function and the need for adjustments in the financial statements in current and prior accounting periods. In addition, the Company’s issuance of $0.91 in 2005 dividends exceeded the 110% of funds from operations per share limitation under the loan covenants of its credit facility.”

Although GCT was a different company, I know that sometimes the apple doesn’t fall far from the tree. I will be watching very closely.

I own ONE share of stock in ACC.

This entry was posted on Thursday, April 2nd, 2009 at 11:32 pm and is filed under Accounting, American Campus Communities (ACC), Law, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.