GMH Sheds All Debt in Q2, Swings to Profit

The turnaround is among the factors cited by Gary Holloway Sr., chairman, president and CEO, during a conference call, that he said signified success of the company's ongoing strategic financial initiative to strengthen the balance sheet and improve liquidity. He also reported that GMH had generated about $219.5 million in net proceeds from the sale of student housing properties and joint venture and financing transactions. The proceeds represented "an amount sufficient to repay all outstanding debt," he said.

Of the previously announced joint venture with Fidelity Real Estate Group, which covers six student housing properties with an aggregate of 3,000 beds, Holloway said GMH retains a 10% equity slice and generates a 4% management fee at those locations. Future student housing acquisitions will be through joint ventures, he added, saying one was anticipated in 2008.

The company's student housing portfolio is 87% preleased for the 2007 academic year, down from 88% at the same time a year ago. Management attributed the dip to an over-supply in some areas of the country along with lagging leases in California where the academic season begins later than elsewhere. John DeRiggi, president of the division, said net rental revenue per bed was up 2.6% this year. He anticipates 92% occupancy before the academic year begins.

Net income in the company's military housing segment was $6.8 million, based on revenue of $25.5 million for the quarter ending June 30. This compares with $5.8 million on revenue of $25.1 million for the same quarter in 2006.

Three potential additional military housing privatization project opportunities are under review, Holloway said. Asked by an analyst if GMH was considering expanding its military business beyond housing to day care and other facilities on bases, Bruce Robinson, president of military housing, said "we have plenty on our plate now, but we are starting to lay the groundwork for that a couple of years down the road."

The locally based specialty housing REIT has been struggling since an investigation launched into its financial reporting in March 2006. A sale of the company was contemplated, but rejected in favor of a financial restructuring.

Regarding GMH's current stock price, Holloway said "it's so undervalued, but there's not much we can do about changing the market." The board of directors will discuss the possibility of buying back some stock, he added.

The company's shares fell to a new 52-week low of $7.74 a share Aug. 7. Its 52-week high was $14.18 per share Oct. 26, 2006. Prior to the launch of the special investigation, it reached a $17.10 per share high in March 2006.