American Campus Communities Inc has agreed to recapitalize and acquire seven student housing properties comprising 3,776 beds for a total of $590.6 million. The deal also includes an option to acquire a 248-bed property in Seattle. The sellers are Core Spaces and DRW Real Estate Investments.
AUSTIN, Texas–(BUSINESS WIRE)–American Campus Communities, Inc. (NYSE:ACC), the largest owner, manager and developer of high-quality student housing properties in the U.S., today announced that it has entered into an agreement to recapitalize and ultimately acquire seven select student housing properties totaling 3,776 beds for an aggregate $590.6 million, including an exclusive option to acquire a 248-bed property in Seattle, Washington, from affiliates of Core Spaces and DRW Real Estate Investments. The portfolio investment focuses on strategic growth in seven key Power-5 conference and state flagship university markets, and offers the potential for multi-asset market efficiencies in five existing ACC markets. The transaction includes the acquisition of two existing communities, two communities opening in Fall 2017, and three projects under-construction scheduled for completion in Fall 2018, with closing and funding events scheduled to occur in a staged manner over approximately two years, allowing for optimal integration and funding.
American Campus Communities believes these seven assets represent some of the best purpose-built student housing properties in their respective markets, combining market leading unit and amenity packages with excellent locations, with the portfolio averaging only 0.2 miles to campus. Additionally, the seven strategic growth markets offer strong student housing fundamentals with average enrollment in excess of 35,000 students and existing purpose-built student housing supply serving only 13 percent of total enrollment, as compared to an average of 22 percent for the company’s current portfolio.
As previously noted, in aggregate, the $590.6 million transaction is expected to include closing and funding events over approximately two years. The company intends to fund a substantial portion of the total transaction through the monetization of select existing core assets via disposition or joint venture, thereby taking advantage of the current cap rate environment for core pedestrian student housing in tier one university markets, where private market transactions in the 4.0 to 4.75 percent cap rate range are frequently occurring. After investment of $7.9 million of upfront capital improvements, the portfolio targets a stabilized cap rate of 5.4 percent nominal and 5.2 percent economic for the 2019-2020 academic year, with multiple property market efficiencies offering the potential for additional yield above the going-in cap rates for five of the seven assets.
“Core Spaces and DRW have developed some of the finest student housing properties in the country,” said Bill Bayless, American Campus Communities CEO. “The properties we have strategically selected in this portfolio are located in Power-5 conference and state flagship university markets that meet the highest levels of our investment criteria of differentiated products in close proximity to campus in submarkets with high barriers to entry. With the implementation of our operating platform across the portfolio, we should achieve meaningful accretion in asset value as well as additional operational efficiencies within the five markets where we have existing properties.”
Two Existing Properties
Hub Eugene, built in 2015, contains 513 beds located pedestrian to the University of Oregon and offers potential operational synergies with the company’s existing property, 2125 Franklin, as well as diversifying the company’s product offering, location and price points within the market. State, built in 2013 and significantly upgraded in 2017, contains 665 beds located adjacent to Colorado State University, a state flagship university which continues to exhibit high levels of enrollment growth. The company acquired these two existing assets in August for an aggregate of $146.1 million.
Two Properties Opening Fall 2017
The James and Hub U District Seattle represent the two projects opening in Fall 2017, both located in Power-5 conference markets. The James, with 850 beds, is located two blocks from the University of Wisconsin in the preferred State Street submarket and marks the company’s strategic entry into the University of Wisconsin market. Hub at U District Seattle, which the company has an exclusive option to acquire, contains 248 beds located pedestrian to the University of Washington. Assuming exercise of the company’s option in October 2017, the acquisition of this asset is in concert with the company’s recently announced strategy to expand its presence in the University of Washington market, one of the most underserved Power-5 markets in the country. The company is acquiring an initial interest in the two properties through a joint venture with Core Spaces/DRW Real Estate Investments in September and October of 2017, for an aggregate of $135.7 million. The remaining interest in both properties are subject to further purchase options exercisable in the fourth quarter of 2019 for an amount to be determined by fair market value, expected to approximate $68.8 million in aggregate.
Three Fall 2018 Presale Development Properties
Hub Ann Arbor, Hub West Lafayette, and Hub Flagstaff represent the three under-construction projects scheduled for delivery in Fall 2018, totaling 1,500 beds. The assets are located pedestrian to the University of Michigan, Purdue University and Northern Arizona University, respectively, representing two Power-5 conference markets and an existing ACE campus – all university markets in which the company has extensive history. The company funded an initial investment of $24.2 million through a joint venture with Core Spaces/DRW Real Estate Investments in August and expects to increase its investment by $130.6 million upon delivery of the assets in Fall 2018, with an option to purchase the remaining interests in the third quarter of 2019 for an amount to be determined by fair market value, expected to approximate $85.2 million in aggregate, subject to satisfactory completion and delivery of such properties.
Upon the initial funding of each property, American Campus Communities assumes sole operational control, while Core Spaces/DRW Real Estate Investments will retain certain limited decision making abilities including responsibility for the development and delivery of the in-process development properties. The acquisition is subject to adjustment to total consideration based on stabilized property tax assessments, various earn-out adjustments and closing conditions including satisfactory completion of the properties currently under construction by Core Spaces/DRW Real Estate Investments. Therefore, there can be no assurance with respect to the timing of the closing of any of these transactions or whether these transactions will be completed.
For additional information, please refer to an investor presentation posted in the Investor Relations section of the company’s website.
About American Campus Communities
American Campus Communities, Inc. is the largest owner, manager and developer of high-quality student housing communities in the United States. The company is a fully integrated, self-managed and self-administered equity real estate investment trust (REIT) with expertise in the design, finance, development, construction management and operational management of student housing properties. As of June 30, 2017, American Campus Communities owned 160 student housing properties containing approximately 99,000 beds. Including its owned and third-party managed properties, ACC’s total managed portfolio consisted of 197 properties with approximately 128,700 beds. Visit www.americancampus.com.