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NEWTOWN SQUARE, PA-GMH Communities Trust’s plan to place some of its student housing properties into a joint venture in order to raise capital to repay debt has been accomplished. The REIT’s student housing division has completed a joint-venture transaction with Boston-based Fidelity Real Estate Group, a unit of Pyramis Global Advisors, a Fidelity Investments Co.

The JV encompasses six GMH-owned properties. Under the new ownership structure, GMH has transferred its 100% interest in five of the six into the JV, and the sixth will be added once the JV obtains lender approval of the partnership’s assumption of debt on the asset.

Under the transaction, the JV simultaneously placed $88 million in new mortgage debt on the five assets. The new funding has a five-year term and requires interest-only payments at a fixed rate of 5.52%. After repaying existing debt on those properties, GMH obtained a total of $56.1 million in proceeds from a combination of Fidelity’s equity contribution and the new debt. The amount of Fidelity’s equity is undisclosed.

All of the proceeds from the transaction will be used to repay debt on GMH’s line of credit from Wachovia Bank. On Nov. 5, GMH obtained a short-term, $250-million line of credit from Wachovia. This March, the company netted $74 million from refinancing four student housing properties to help pay down the credit line.

The initial five properties in the Fidelity JV are University Uptown in Denton, TX; University Heights in Knoxville, TN; University Walk in Charlotte NC; the Ridge in Morgantown, WV; and Campus Edge, Phase I in Charlotte, NC. The sixth property, Campus Edge, Phase II in Charlotte, is expected to be added within 30 days.

GMH will continue to manage the properties and receive management fees. “Entering into this joint venture allows us to monetize the value of several assets and reduce outstanding indebtedness under our line of credit,” says John DeRiggi, CIO and president of the division, in a statement. “Additionally, we expect to explore opportunities to acquire complementary student housing assets through similar joint venture structures that would enable us to enhance our franchise value by leveraging our property management and leasing talents.”

The formation of JVs was a strategy outlined by GMH in late December, following management’s decision to re-structure rather than sell the company. The locally based REIT, which specializes in military and student housing, has been beset by problems for a year following allegations of “tone at the top” problems and “material weaknesses” in controls over financial reporting. The allegations launched a special committee and independent audit, both of which have been completed.

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