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 largest owner will give Charleston-based Greystar, who currently manages more than 18,000 student housing beds in the U.S. and owns more than 39,000 student housing beds abroad, a substantial ownership portfolio of student housing 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 housing 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 transaction’s close, a joint venture between an affiliate of Blackstone Real Estate Income Trust (BREIT) and an affiliate of Greystar will acquire a portfolio of off-campus student housing assets formerly 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 management 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 communities 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 management team took over on January 1, 2010 — and including this transaction — EdR stockholders will have received a total stockholder return of 293 percent.”
According to Alex Goldfarb, managing director and senior REIT analyst at New York-based Sandler O’Neill + Partners LP, the transaction 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 privatization 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 performances 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 disconnect that exists between how public and private capital markets value the student 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 has risen 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 advisors 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