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Monday, 25 June 2018

JPMorgan to Lend $3Bln for Greystar's Education Realty Trust Buy

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Commercial Real Estate Direct Staff Report

JPMorgan Chase Bank will be providing roughly $3 billion of financing to facilitate Greystar Real Estate Partners' purchase of Education Realty Trust.

The Charleston, S.C., investment manager has agreed to buy Education Realty, commonly referred to as EdR, in an all-cash transaction valued at $4.6 billion. It's paying $41.50 for every EdR share that's outstanding, for an equity valuation of $3.1 billion, based on the 75.8 million shares outstanding at the end of February, and assuming the company's debt, just about all of which is unsecured, and other liabilities.

To fund the equity needed to cover the purchase price, Greystar has formed a fund - Greystar Student Housing Growth and Income Fund - that's capitalized by a number of institutional investors. In addition, it would sell a portfolio of 20 of EdR's properties to a venture it's forming with Blackstone Real Estate Income Trust Inc. for $1.2 billion.

That venture, 95 percent owned by Blackstone, would buy properties that are off the campuses they serve. That would leave the Greystar fund only with properties that are either on campus or very close to the campuses they serve. Those tend to be more valuable than off-campus properties.

EdR owns 79 student-housing properties with 42,300 beds serving 50 universities in 25 states. It was formed in 2004 as a successor to Allen & O'Hara Inc., a developer of student-housing properties, and went public a year later. Eight years ago, the company underwent a management shakeup. In came a team led by Randall L. Churchey, its chief executive, that upgraded its portfolio so that every property the company owns is now less than 0.3 miles from the campus it serves.

The company found that student-housing properties closer to campus lease up quicker and maintain a higher average leasing rate than those further away. Studies, meanwhile, have shown that students who live closer to campus tend to have better academic outcomes.

The price that Greystar is paying would appear rich, given the $63 million of operating income EdR generated last year. But its value lies in its development pipeline. The company has 12 properties that it wholly owns that are under construction and another seven it owns with venture partners. In total, the properties have an estimated value of $1.5 billion.

"The development pipeline is the opportunity," explained Bob Faith, Greystar's founder and chief executive. "We're very comfortable with the development of multifamily properties. So we understand that risk. We know what properties will be worth when they're stabilized."

An additional value that Greystar is getting is EdR's platform and relationships with universities. "We're getting a great portfolio, ongoing compelling development opportunities that our fund will participate in and great expertise," Faith said.

Last year, EdR's same-store occupancy rate was 90.2 percent, while same-store revenue per bed was $841/month. Overall occupancy was 88.5 percent, while net apartment rent per occupied bed was $788/month. The company's operating margin last year was 59.1 percent.

Greystar is no stranger to student housing. Globally, its portfolio has a nearly 30 percent concentration of such properties. Its U.S. portfolio, before the EdR deal, which is slated to close by the end of the year, has a 10 percent concentration. But its overseas portfolio has a substantially greater concentration. Most rental apartment units in foreign countries are owned as condominiums by investors, then rented, which leaves primarily student-housing units among most countries' rental stock.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.



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