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.
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 underlying 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 company, 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 announcement of the deal, the CEO goes out of his way to talk about the on-campus platform being an integral component of what the interest was in our company. I have spoken to a number of our university partners; they are excited. One of the things they did not like about us as a public company was the volatility of the share price. They knew that possibly had impacts to our decision making. When we explain who Greystar is, as well as the relationship with Blackstone in this deal, the universities are excited about that large amount of perpetual capital. With any change there is a little anxiety and I am sure they all have that. Overwhelmingly, though, the reaction has been very positive.
SHB: When we spoke with Bob Faith [CEO of Greystar], one of the first things he spoke about was the upside potential of the on-campus platform that EdR has.
Churchey: Bob has built a fabulous organization over the past 20-plus years. Greystar’s access to capital is great. We expect that as they takeover, they will be able to grow the on-campus division at a much faster pace than it was before.
SHB: Do you know any plans for the future? On-site staff will likely remain as in most mergers, but what about your corporate staff?
Churchey: Those details have yet to be worked out. Remember what Greystar has in the way of student housing versus what they have just acquired. They own about 2,000 beds in the U.S. today and manage about 18,000. We have 40,000 beds under ownership. Everything we have spoken to them about is about combining the strengths of the two organizations. EdR has such a higher number of U.S.-based beds; the expectation is that they will build upon that. Our employees here in Memphis are anxious, as you would expect them to be. Everything we have worked on so far seems to continue with our Memphis staff and team augmented by Greystar’s staff.
SHB: In your opinion, what did Greystar like about EdR’s portfolio? What do you think attracted them to the properties?
Churchey: To Wall Street, we have spoken so often about our portfolio. Our portfolio, in our opinion, is second to none. The average distance to campus of our properties is one-tenth of a mile; the average age of a property is seven years; and the average enrollment at the universities we serve is over 27,000 students. We are at the big, name brand universities and we are close to campus with assets that are close to campus and fully amenitized. The portfolio was obviously the main attraction. The second attraction is our on-campus platform. EdR has strong relationships with universities and merchant developers. Greystar sees that as a great opportunity to grow.
SHB: What are the next steps in the merger process?
Churchey: There are lots of legal documents and SEC filings that have to take place. The closing is targeted for late third quarter, early fourth quarter. In the meantime, it is business as usual. We have 10 development deliveries this August; we still have to do final leasing. We also have to do all the other stuff that goes with running the business. We will get into the details of the combination so we have a coherent structure that continues our ability to grow.