CHC aims to be first mover
It is the first of its kind in Canada and over the next couple of weeks executives of CHC Student
Housing Corp. hope to convince enough investors that an attractive opportunity exists in student housing.
The investment thesis is straight forward: Canadians will continue to go to university; given the overall lack of accommodation for students in and around campuses, the demandsupply balance is favourable; and the management team, led by chief executive Mark Hansen, is good enough to capitalize on that opportunity and grow the business in other parts of the country.
In what is effectively the company’s initial public offering, CHC Student Housing intends to raise about $100 million via the sale of common shares.
The bulk of those proceeds will be used to fund the so-called acquisition properties, buildings suitable for accommodating students and creating a student environment in five Ontario cities. Some of the rest will be used to pay down mortgage debt.
Prior to its current financing, CHC — which went public as a capital pool company in the fall of 2013 and raised $1 million — has raised equity through two private placements. CHC completed its qualifying transaction in early 2014.
In forming a real estate company geared to student housing, CHC, which will also pay dividends of around five per cent, is following models that are common in other parts of the worlds.
In the U.S., for example, American Campus Communities has been public for more than a decade, manages and owns 169 properties with more than 130,000 beds, and has been a steady performer. In the U.K., UNITE Group PLC has been in the business for 15 years, owns more than 125 properties with 43,000 beds and has also generated strong results.
Clearly CHC is aiming for the benefits that flow from being the first mover. After this financing it is expected to own 13 properties that house more than 3,500 beds.
All of CHC’s properties are in Ontario and Quebec and all the renters sign an individual 12-month lease with CHC. (The parents guarantee the monthly lease payments.) None of the properties are in Toronto or Montreal. Raymond James and TD Securities are leading the offering that’s been done on a marketed basis.
CHC, which didn’t comment on the grounds that its offering is in registration, has three main strategies: ❚It acquires purpose-built student housing according to criteria it has developed. Those buildings are up the food chain compared with what students rent in the McGill ghetto, Toronto’s Annex or where my oldest son lives in Halifax; ❚It acquires multi-family buildings that it can renovate and turn into student housing and charge higher rents. And given the age of its portfolio, CHC is not subject to rent controls, meaning that it can charge market rents. In this way the rents can be viewed as an inflation hedge. The average rent per room is about $550 per month; and ❚It provides financing to developers which are building properties that can be suitable for it to acquire once completed. (It has two such developments at present: one in Kingston, Ont. and the other in Oshawa.) Those partnerships allow CHC the first right on such developments.