Student Housing Business

JUL-AUG 2018

Student Housing Business is the voice of the student housing industry.

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NE WS IN BRIEF July/August 2018 8 GREYSTAR TO ACQUIRE EDR IN $4.6 BILLION TRANSACTION Charleston, S.C. — An affiliate of Charleston- based multifamily development firm Greystar has agreed to acquire student housing owner- developer Education Realty Trust Inc. (NYSE: EDR) in an all-cash merger transaction valued at approximately $4.6 billion. The sale price includes existing debt. Under the terms of the agreement, which is expected to close during the second half of the year, EdR's stockholders will receive $41.50 per share in cash. The price represents a premium of 13.6 percent over the May 31 closing share price, the last day before rumors of the sale were published. The acquisition of the industry's fourth larg- est owner will give Charleston-based Greystar, who currently manages more than 16,700 stu- dent housing beds in the U.S. and owns more than 2,000 student housing beds abroad, a sub- stantial ownership portfolio of student hous- ing domestically. Greystar was attracted to EdR not only because of its position in the industry, but the quality of its assets, its relationships with universities and its employees, said Bob Faith, the company's CEO, in an interview with SHB. The on-campus development side of EdR was also a major attraction. "There's a duopoly of the on-campus hous- ing development business, where EdR and ACC get the majority of it," says Faith. "We want to make that a Greystar core competency as well. When you look at EdR's portfolio, the assets are new and they are all close to campus, it is a portfolio that would be impossible to put together one-by-one." Greystar will place much of the on-campus and new development assets in its newly- formed Greystar Student Housing Growth and Income Fund. Concurrent with the transac- tion's close, a joint venture between an affiliate of Blackstone Real Estate Income Trust (BREIT) and an affiliate of Greystar will acquire a port- folio of off-campus student housing assets for- merly held in the EdR portfolio. "BREIT is focused on cashflow and growing that cashflow," says Faith. "That allows us to have the Student Housing Growth and Income Fund to have the on-campus properties and development." Greystar acquired its student housing man- agement business in 2008 when it acquired JPI. "We have always been operationally-led," says Faith. "We believe firmly in having the operational knowhow to lead our investment activities." EdR owns 79 student housing properties totaling 42,300 beds across 25 states. At the end of 2017, the company also managed 16 com- munities totaling 9,832 beds across 10 states. "As a public company, one of our priorities is to maximize stockholder value and we believe this transaction with Greystar accomplishes that goal," says Randy Churchey, CEO and chairman of EdR. "Since the current EdR man- agement team took over on January 1, 2010 — and including this transaction — EdR stock- holders will have received a total stockholder return of 293 percent." According to Alex Goldfarb, managing direc- tor and senior REIT analyst at New York-based Sandler O'Neill + Partners LP, the transac- tion says as much about current strategies for REIT stocks as it does the market for student housing. "Public REIT investors are under pressure due to concerns over outgoing cash flows, rising interest rates and growth opportunities elsewhere," says Goldfarb. "Given where REIT stocks are trading overall, the potential to have privatiza- tion of REITs is real and is helpful for REITs as they pitch investors." Goldfarb adds that from a student housing perspective, the deal reflects Greystar's confidence in the perfor- mances of on-campus assets. He says EdR's portfolio is approximately 40 percent on-campus housing, with the rest positioned off campus. In addition, the offered price illustrates the discon- nect that exists between how public and private capi- tal markets value the stu- dent housing sector, adds Goldfarb. EdR's stock price closed at $40.41 per share on Friday, June 22, essentially unchanged from one year ago. However, the stock price rose by more than 10 percent since May 31. BofA Merrill Lynch is service as the financial advisor on the transaction, and Morrison & Foerster and Venable are serving as legal advi- sors to EdR, while Hogal Lovells and King & Spalding are legal advisors for Greystar. JPMorgan Chase Bank has committed to debt financing for Greystar's new Student Housing Growth and Income Fund. Citigroup Global Markets and TSB Capital Advisors are acting as financial advisors to BREIT, while Simpson Thacher & Bartlett is the legal advisor for BREIT. — Taylor Williams and Randall Shearin SHB: How did the deal with Greystar come to fruition? Churchey: Since late fall 2017, all real estate investment trust (REIT) share prices have declined to a level that did not reflect the underly- ing value of companies' assets. This isn't just EdR and ACC, it is really all REITs. When that happens, there are private companies that begin calling REITs to see if they want to sell the company. In our case, we weren't trying to sell the company, but we received a number of phone calls. In that variety of phone calls, the call from Greystar stood out. We knew that they were a global leader in multifamily housing and knew that they were the largest owner of student housing in London, as well as the largest owner of student housing in Spain. They have a strong student housing management platform in the United States. When they called, we thought that the transaction might make a lot of sense. SHB: What does the deal mean for EdR's shareholders? Do you think it is a happy return for them? Churchey: I have not had an investor yet call me and say the deal is bad. It is a fantastic outcome for the shareholders. Since we took over January 1, 2010, our total shareholder return is 293 percent to date. That ranks us in the top 25 percent of all U.S. public equity REIT shares. Our shareholders have done extremely well over the years, and with this transaction. Analysts spend time computing net asset values of companies. Prior to this deal, the average net asset value of our com- pany, per the analysts, was around $38.50 to $39 per share, so to sell the company at $41.50 per share is better than that. The price that most of them are computing puts the cap rate in the low 5 percent range. SHB: What does this deal mean to your university partners? Churchey: We have spoken to everyone we thought we needed to speak to regarding the deal. High on that list are our current university partners and a number of prospective university partners. They have been reasonably indifferent. The reason for that we have been telling them that the expectation is that the team that has been servicing you will be the team going forward. The reason why Greystar was willing to pay the price for EdR was that they valued the on-campus — and really our entire — platform that we have. In Greystar's announce- ment of the deal, the CEO goes out of his way to talk about the on- Churchey Faith CHURCHEY: EDR/GREYSTAR A 'FANTASTIC OUTCOME' FOR SHAREHOLDERS Following late June's announcement that Greystar will acquire EdR in a $4.6 billion transaction, SHB interviewed EdR's CEO Randy Churchey to get an inside view of the deal.

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