GMH to Be Acquired in 2 Parts for $1.8B

Two deals have been struck that will leave GMH Communities Trust under new ownership. The Newtown Square, Pa.-based REIT will merge with American Campus Communities Inc. in a $1.4 billion deal after selling off its military housing division to the U.S. subsidiary of Balfour Beatty Plc for $350 million. The bulk of the money involved in the definitive agreement between specialty housing REIT GMH and Austin-headquartered ACC–which owns, develops and manages student housing properties across the United States–involves the buyer’s assumption of existing debt. ACC will take on responsibility for GMH’s $963 million in outstanding debt, leaving a remaining payment of about $437 million; GMH common shareholders and GMH Operating Partnership unitholders will receive 0.07642 of a share of ACC common stock along with $3.36 in cash, representing a deal valued at $5.53 per share. Upon completion of the merger, ACC’s portfolio will be enhanced by the addition of 64 wholly-owned student housing properties and a minority interest in eight other properties that are part of two joint ventures. However, as stipulated by the agreement, GMH has the option of selling 10 of the wholly-owned communities in advance of the closing of the deal; the company has also committed to selling its corporate office property. ACC has already made plans for some of the GMH properties, having agreed to contribute 15 GMH communities valued at $326 million to a new joint venture with Boston’s Fidelity Real Estate Group. ACC–which will retain a minority ownership of the joint venture and take on management responsibilities for the property–will rely on funds from the selling of the assets to the joint venture and a $200 million term loan from KeyBank N.A. to finance the GMH acquisition. Upon completion of the merger and the execution of the joint venture, ACC’s portfolio will consist of 83 student housing communities with a total of approximately 51,600 beds, and joint venture interests in 23 assets accounting for 13,200 beds; its third-party management responsibilities cover 26,600 beds. The merger with ACC is on schedule to close during the second quarter, provided that GMH shareholders sign off on the deal and the company wraps up the disposition of its military housing business. GMH established GMH Military Housing in 1999. The entity builds and manages on- and off-base housing communities for the U.S. Army, Navy and Air Force as part of the U.S. Department of Defense’s program for upgrading and enhancing the pool of military housing through privatization. GMH Military Housing’s portfolio encompasses 42 bases accounting for approximately 30,000 housing units. As per the definitive agreement, London-based Balfour will pay a cash sum of $4.08 per share and per unit for the military assets in two separate disbursements; the initial payment occurring upon the closing of the transaction, and the final distribution just before the closing of GMH’s merger with ACC. The deal will enhance Balfour Beatty’s U.S. presence even further, as the company, acting through its Dallas-based division Beatty Construction L.L.C.–the former Centex Construction–is in the midst of developing in excess of 1,400 residences at Fort Stewart in Georgia. With GMH’s Board of Trustees having already given its approval, the deal between GMH and Balfour will likely conclude during the second quarter.GMH stock opened today at $8.75, after having previously closed at $5.59, while ACC shares opened at $28 following a previous close of $28.43. Fidelity Real Estate Group, a division of Fidelity Investments affiliate Pyramis Global Advisors, manages $14 billion on behalf of its institutional and individual clients.