Meeting Agenda Announcements Portfolio Update Market Update Lecture: Pitch Terminology Pitch: ACC Important Dates Announcements Announcements Announcements Free Wall Street Journal digital access for paid members Contact treasurer@usiteam.org to receive login information Announcements Fall Portfolio Challenge •Build and manage your own virtual portfolio •Compete with other McCombs students •Top three winners receive prizes in January $5 entry fee Register at usiteam.org/events First USIT Social Ultimate Frisbee • When: Tonight, 8:30 pm • Where: South Mall • Cost: Free! Announcements The Suggestion Box Announcements Workshops Every Thursday 7-8PM SAC2.120 Topic this week: • Cash Flow Modeling Portfolio Update Historical Performance Invested Capital 8/30/2013 $4,396.8 9/6/2013 $7,739.3 9/13/2013 $4,328.6 9/20/2013 $4,381.9 9/27/2013 $5,911.2 10/4/2013 $5,847.4 10/11/2013 $7,037.0 Ticker AAPL ADNC CBRX ENZN IDT SWKH U AGX AIG Cash $9,716.0 $6,556.9 $9,922.9 $9,922.9 $8,226.2 $8,226.2 $7,120.9 Shares US Equity US Equity US Equity US Equity US Equity US Equity CN Equity US Equity US Equity 3 50 125 200 75 400 125 25 15 Exposure 31.2% 54.1% 30.4% 30.6% 41.8% 41.5% 49.7% AUM $14,112.8 $14,296.2 $14,251.5 $14,304.8 $14,137.4 $14,073.6 $14,157.8 Weekly Portfolio Return Cost Per Share Total Cost Basis Purchase Date $486.11 $1,458.32 8/13/2013 $10.51 $525.50 8/13/2013 $6.82 $852.13 8/14/2013 $1.96 $391.00 8/13/2013 $18.00 $1,349.65 8/14/2013 $1.13 $450.00 8/13/2013 $4.64 $579.68 8/28/2013 $21.67 $541.75 9/26/2013 $49.37 $740.55 10/10/2013 Cumulative Return Since 8/30/13 0.0% 1.3% 1.3% (0.3%) 1.0% 0.4% 1.4% (1.17%) 0.17% (0.45%) (0.28%) 0.60% 0.32% Exp-Adj Weekly Return Exp-Adj Cum. Return 0.0% 2.40% 2.4% (1.03%) 1.3% 1.22% 2.6% (2.80%) (0.3%) (1.09%) (1.4%) 1.20% (0.2%) PX_LAST Total Market Value Gain/Loss Gain/Loss % Sector $492.81 $1,478.44 $20.12 1.4% Information Technology $12.46 $623.00 $97.50 18.6% Information Technology $7.02 $877.50 $25.38 3.0% Health Care $1.74 $348.00 ($43.00) -11.0% Health Care $18.24 $1,368.00 $18.35 1.4% Telecommunication Services $1.15 $460.00 $10.00 2.2% Financials $4.74 $593.05 $13.38 2.3% Basic Materials $21.56 $539.00 ($2.75) -0.5% Industrials $50.00 $750.00 $9.45 1.3% Financials Portfolio Update Sector Exposures Information Technology Energy Consumer Services Consumer Goods Financials Industrials Health Care Utilities Telecommunication Services Basic Materials Dollar Amount $2,101.44 $0.00 $0.00 $0.00 $1,210.00 $539.00 $1,225.50 $0.00 $1,368.00 $593.05 % Allocation 30% 0% 0% 0% 17% 8% 17% 0% 19% 8% 0% 15% 0% 0% Information Technology Energy 9% Consumer Services Consumer Goods Financials Sector Exposures + Cash Information Technology Energy Consumer Services Consumer Goods Financials Industrials Health Care Utilities Telecommunication Services Basic Materials Cash Historical Performance Invested Capital 8/30/2013 $4,396.8 9/6/2013 $7,739.3 Cash $9,716.0 $6,556.9 $2,101.4 $0.0 $0.0 $0.0 $1,210.0 $539.0 $1,225.5 $0.0 $1,368.0 $593.1 $7,120.9 15% 0% 0% 0% 9% 4% 9% 0% 10% 4% 50% Exposure 31.2% 54.1% AUM $14,112.8 $14,296.2 4% 50% Industrials Health Care Utilities 9% Telecommunication Services Basic Materials 10% 0% Cash 4% Weekly Portfolio Return 1.3% Cumulative Return Since 8/30/13 0.0% 1.3% Exp-Adj Weekly Return 2.40% Exp-Adj Cum. Return 0.0% 2.4% Market Update Twitter-Based WMD’s Market Update Why would TV providers be willing to allow a direct competitor steal away facetime for the commercials they sell? Market Update Market Update Pitch Terminology Competitive Advantage Competitive Advantage What gives the company an sustainable edge over its competitors? Cost Advantages Differentiation Advantages Cost Advantages What creates a cost advantage? Economies of Scale (Walmart) Superior Technology/Process (Toyota & Dell) Differentiation Advantage What creates a differentiation advantage? Similar Product with Key Differentiation (Apple) Entirely Unique Product Competitive Advantage Not all competitive advantages fall into one of the two categories: Reputation Barriers to Entry Strategic Assets Flexibility Brand Popularity Switching Costs Competitive Advantage How does this relate to pitches? Good Investment = Quality Company + Good Price Quality Company = Survival Potential + Outperformance Competitive Advantage Can you invest in companies without a competitive advantage? Good Investment = Quality Company + Good Price Not every investment is built upon a “company will outperform” thesis and focus more on price. October 15, 2013 University Securities Investment Team American Campus Communities (NYSE: ACC) Manideep Ravi Tyler Menk Ann Cai Zach Sunderland Strategic Capital Group Company Overview • • • • • Largest student housing company • 1st publicly traded student housing REIT Real Estate Investment Trust • Distribute 90% of income as dividends • Does not pay corporate income tax $4.2 billion worth of developments Partners with universities to build both on and off campus properties Headquartered in Austin Strategic Capital Group Investment Thesis Highly experienced management Strong Revenue Growth Expanding Market Strategic Capital Group Industry Overview: Student Housing REIT Threat of New Entrants Bargaining Power of Suppliers Competitive Landscape Threat of Substitutes Bargaining Power of Buyers Strategic Capital Group Market Overview • • • Near-campus housing for college students • More independence • Lower Costs • Full kitchen units Increasingly cash-strapped universities contract private developers for housing Students paying for housing with student loans Strategic Capital Group Risks & Mitigating Factors Seasonality of leases Competition from oncampus housing Future growth dependent on favorable real estate market Cannibalization of customers Strategic Capital Group Management • William C. Bayless Jr., President & CEO • Owns 20% of the company • Began student housing career in 1984 • President of ACC since October 2003 • Jonathan A Graf, Executive VP, CFO, Treasurer and Secretary • Owns 8% of the company • Extensive background in accounting • R.D. Burck, Chairman of the Board • Former Chancellor of UT Austin • Former VP of ESPN Strategic Capital Group Competitors Company Market Current Ticker Cap Stock Price FFO Education Realty Trust EDR 1065.59.28 40.80 4.40 0.712.11 19.91 Equity Residential EQR 19357.253.72 993.20 18.49 1.062.91 19.22 Campus Crest Communities CCG 663.210.28 25.40 2.47 0.664.16 14.66 353.13 8.45 0.8353.06 17.87 168.40 4.80 0.917.30 17.7 Industry Average American Campus Communities ACC 3673.635.06 Total Equity FFO/Share Debt/Equity Value/FFO TEV/NTM EBITDA Strategic Capital Group Valuation Revenue Cost of Sales Gross Profit Gross Margin 2012 $491.0 $237.0 $254.0 51.7% 2013 $613.8 $279.7 $334.1 54.4% Projected (In Millions) 2014 2015 2016 $754.9 $921.0 $1,123.6 $332.8 $399.4 $479.2 $422.1 $521.6 $644.4 55.9% 56.6% 57.3% SG&A Expenses Other Income EBIT EBIT Margin $23.0 $0.4 $231.4 47.1% $25.72 $0.4 $308.8 50.3% $28.81 $0.4 $393.7 52.2% $32.26 $0.4 $489.8 53.2% $36.14 $0.5 $608.7 54.2% $40.47 $0.5 $733.3 54.4% NOPAT D&A CapEx Change in NWC FCF Present Value of Cash Flows $231.4 $115.9 $255.0 ($0.4) $92.7 $308.8 $122.8 $280.5 $35.6 $115.6 $110.1 $393.7 $131.4 $314.2 $15.9 $195.1 $176.9 $489.8 $140.6 $358.1 $18.6 $253.7 $219.2 $608.7 $151.9 $408.3 $20.9 $331.5 $272.7 $733.3 $167.1 $469.5 $22.2 $408.6 $320.2 Terminal Value Enterprise Value 2017 $1,348.3 $575.1 $773.3 57.3% $ $ Assumptions WACC Tax Rate Exit Multiple Share Price 5% 0.0% 17.70x $ 35.20 7,232.98 6,766.31 Calculations Enterprise Value $ Less Net Debt $ Equity Value $ Shares Outstanding Value Per Share $ Implied Discount 6,766.3 2,569.9 4,196.4 104 40.35 14.63% Strategic Capital Group Conclusion Pitch Team Sign-Ups www.usiteam.org/membership