Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT PURSUANT
TO
SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date of
report (Date of earliest event reported): July 19, 2010 (July 14,
2010)
Education
Realty Trust, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Maryland
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001-32417
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20-1352180
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(State
or Other Jurisdiction
of
Incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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530
Oak Court Drive, Suite 300
Memphis,
Tennessee
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38117
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(Registrant’s Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions (see General Instruction A.2.
below):
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.01. Entry into a Material Definitive Agreement.
On July
14, 2010, Education Realty Trust, Inc. and certain of its subsidiaries
(collectively, the “Company”)
entered into definitive agreements with 929 N. Wolfe Street, LLC (the “Owner”), a
wholly-owned subsidiary of East Baltimore Development, Inc. (“EBDI”), a
non-profit entity, for the development, financing and management of a 20-story,
572-bed graduate student housing complex (the “Project”)
at the Science + Technology Park at Johns Hopkins Medical Institute (“Johns
Hopkins”). The Project will be constructed on land owned by Johns Hopkins
that has been leased to the Owner. The Company has commenced construction with
the opening of the Project scheduled for the summer of 2012.
Financing
Arrangements
The total
cost of the Project, which is approximately $60 million, is expected to be
financed through a $42 million conventional construction loan provided by a
third-party lender to the Owner and an $18 million second mortgage loan provided
by the Company to the Owner (the “Second
Mortgage”). The construction loan and Second Mortgage are credit enhanced
by a replenishing $2.5 million cash reserve fund provided by the Owner to cover
any cash shortfalls. This cash reserve fund is equivalent to approximately 50%
of annual cash flow before debt service and will be replenished as necessary
each year until a 1.10 debt service coverage ratio with respect to all of the
financing for the Project has been achieved for 12 consecutive
months.
The term
of the Second Mortgage is 30 years and matures in July 2040. The Second Mortgage
will earn interest at an annual rate of 10% for years 1 through 5 (including
construction periods), 12% for years 6 through 10 and 14% thereafter. The Second
Mortgage contains customary affirmative and negative covenants and is secured by
a lien on the leasehold interest and a pledge of the replenishing cash reserve
fund.
The
Company has committed to provide a guarantee (the “Guaranty”)
of repayment of the third-party construction loan if such is ultimately
obtained. The Company will receive a guarantee fee of approximately $3.0
million.
The
Company has also committed to fund the $42 million construction loan if such
financing cannot be obtained from a third-party lender. Accordingly, in the
event that the construction financing is not obtained from a third-party lender,
the Company would provide the entire $60 million necessary to finance the
Project. To date, the Owner has selected a third-party lender based upon
receiving a non-binding commitment letter for a construction loan.
The
agreements for the construction loan, Guaranty and Second Mortgage will be filed
with the Company’s Quarterly Report on Form 10-Q for the period ended June 30,
2010.
Item
2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The
information set forth in Item 1.01 is incorporated herein by
reference.
Item
7.01 Regulation FD Disclosure.
Development
Project at the Science + Technology Park at Johns Hopkins
The
Company announced today the commencement of construction for the previously
announced Project at Johns Hopkins. A copy of the press release is furnished
herewith as Exhibit 99.1 to this Current Report on Form 8-K.
Development
Agreement
Under the
terms of the Development Agreement, the Owner will pay the Company development
and construction oversight fees of approximately $2.1 million and, upon
execution of the Development Agreement, the Owner reimbursed the Company for
$2.1 million of pre-development costs that the Company had already incurred.
Approximately $1.3 million of the pre-development costs were previously expensed
by the Company with the remaining $0.8 million recorded as deferred costs
pursuant to previously executed reimbursement agreements. The Development
Agreement contains additional terms and conditions which are typical of
development agreements generally entered into by the Company in the ordinary
course of business.
Management
Agreement
Under the
terms of the Management Agreement, the Owner will pay the Company management
fees based upon 4% of gross revenues generated from the
Project. First year fees are estimated to be approximately $300,000.
The term of the Management Agreement is the greater of 10 years or until the
full repayment of the Second Mortgage. The Management Agreement contains
additional terms and conditions which are typical of management agreements
generally entered into by the Company in the ordinary course of
business.
Business
Considerations
Though
the deal structure for the development, financing and management of the Project
is different than the Company’s previous development projects, the Company
believes that, except for the following notable differences, the overall risk
and reward will generally be commensurate with its ONE Plan on-campus
development projects, under which the Company uses its equity and financial
stability to fund and own projects on university land.
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First
full year forecasted yield is 10%, which is at least 200 basis points
above the first year forecasted yield for a ONE Plan on-campus development
project;
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Risk
is mitigated by the replenishing cash reserve fund that represents
approximately 50% of yearly EBITDA;
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Upside
benefits are limited by the 10% coupon in years 1-5 on the $18 million
Second Mortgage; and
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Projected
un-leveraged internal rate of return for the Project development,
including fees, is expected to be in the upper teens, which exceeds other
deals the Company is underwriting.
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Accounting
Considerations
The
Company’s statements of operations will recognize the development services
revenue and interest income earned on the Second Mortgage when the Second
Mortgage is repaid. The Company’s calculation of Funds From Operations –
Adjusted will, however, include the economic benefits of these items on a
quarterly basis.
ONE
Plan Development Project at the University of Texas at Austin
The
Company announced today that The University of Texas System Board of Regents has
awarded the Company a ONE Plan on-campus development project at the University
of Texas at Austin. A copy of the press release is furnished herewith as Exhibit
99.2 to this Current Report on Form 8-K.
Safe
Harbor Statement
The
Company believes that certain statements in this Current Report on Form 8-K may
constitute “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are made on the basis
of management’s views and assumptions regarding future events and business
performance as of the time the statements are made. Actual results may differ
materially from those expressed or implied. Information concerning factors that
could cause actual results to differ materially from those in forward-looking
statements is contained in the Company’s filings with the Securities and
Exchange Commission.
Item
9.01. Financial Statements and Exhibits.
(d) Exhibits. The
following exhibits are being furnished herewith to this Current Report on Form
8-K.
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Exhibit
No.
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Description
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99.1
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Press
Release dated July 19, 2010
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99.2
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Press
Release dated July 19,
2010
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SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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EDUCATION
REALTY TRUST, INC.
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Date:
July 19, 2010
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By:
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/s/
Randall H. Brown
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Randall
H. Brown
Executive
Vice President, Chief Financial Officer,
Treasurer
and Secretary
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INDEX
TO EXHIBITS
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Exhibit
No.
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Description
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99.1
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Press
Release dated July 19, 2010
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99.2
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Press
Release dated July 19, 2010
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