Why Education Realty Trust May Be The Next REIT To Go Private
Student housing REITs tend to do well no matter where the cycle is as students will always go to college, even -- especially -- during a downturn.
MEMPHIS, TN–There have been numerous media reports that a private equity company or companies — in particular, according to the Wall Street Journal, Greystar Real Estate Partners LLC — is in serious talks with the student housing REIT Education Realty Trust to take it private. The Journal reports that an announcement will be made this week, presumably today, that Greystar is acquiring EdR for $3.1 billion, or $41.50 a share, give or take.
In general, this clearly is the season of the deal not only for REITs, because of their discounted stocks, but also for all owners of quality assets. Both public and private companies are snatching up quality holders of quality assets in hopes of gaining market share or expanding deal flow.
Disrupting Deals
Activity is so frenzied that even deals in which the buyer and seller have struck an agreement are in danger of being disrupted as new bidders emerge to offer something better. Such is the case with the Blackstone-LaSalle Hotel Properties’ pending $4.8 billion acquisition, with Pebblebrook Hotel Trust recently submitting a revised offer for LaSalle.
Even holders of skilled nursing assets — a troubled sector for many reasons — are finding there is more than one bidder. Earlier this week, Quality Care Properties received a competing offer to Welltower’s $1.95 billion proposed acquisition during its go-shop period.
Edward Jones’ REITS analyst Matt Kopsky’s writes that the emergence of a second bidder is a positive for the skilled nursing industry. And who is this mystery company? It’s not Ventas or Healthcare Properties trust since they both recently exited the skilled nursing space. That leaves Omega Healthcare Investors and Sabra Healthcare REIT, he writes. “There has also been more private equity interest in the space recently given the current depressed valuations, limited new supply and eventual turnaround in demand given aging demographics,” Kopsky concludes.
Student Housing As a Defensive Play
In the case of student housing, however, the likely acquisition driver is that these REITs are good defensive plays — that is, student housing tends to do well no matter where the cycle is as students will always go to college, even — especially — during a downturn.
For example, Bank of America Merrill Lynch analyst Juan Sanabria, when he upgraded American Campus Communities from Neutral to Buy with a price target of $46.50 from $43, noted that student housing stands out within REITs as they are experiencing a “significant” amount of capital inflows, especially from overseas sources. Also, if EdR does go private, American Campus could increase its market share of on-campus transactions with universities, he also reasons.
Best of all from an acquirer’s standpoint, these REITs have been beaten down by the market because of weaknesses in their fundamentals — namely supply growth has been outpacing enrollment growth. Their long-term story, though, is positive: Colleges must provide highly-amenitized housing to their students and the most cost effective way to do that is through public-private partnerships with REITs.
Just last month EdR broke ground on SouthSide Commons with Lehigh University in Bethlehem, Pa. The 428-bed community is being financed through EdR’s ONE Plan, which it describes as a program that “gives the university access to a single trusted partner.”