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NEWTOWN SQUARE, PA-Although GMH Communities Trust reported progress on its turnaround strategies during the first quarter of this year, net income was $129,000 compared with $1.1 million for the same quarter a year ago. Funds from operations lifted to $12.7 million, versus $12.2 million in the prior-year quarter.
Expenses of $2.6 million for the audit committee's special investigation and the amortization of approximately $1.1 million of deferred financing costs negatively impacted both income and FFO. The deferred financing related to the REIT's line of credit with Wachovia Bank.
The company reported that, on May 7, the day first-quarter financials were released, it entered into a credit facility with Merrill Lynch, Pierce, Fenner and Smith Inc. that allows it to borrow up to $100 million on a revolving basis over three years. Under certain unspecified conditions, the capacity can increase to $125 million.
GMH borrowed $90.7 million from the facility to repay all of its remaining debt and interest, plus transaction costs to Wachovia and terminated that line of credit. It intends to replay borrowings from the Merrill Lynch facility with proceeds from a previously announced JV with Fidelity for six student housing properties and the pending sale of six more student housing properties, which is expected to close in second quarter.
Proceeds from the sale of its 90% stake into the Fidelity JV are expected to net $61 million. During a conference call, Gary Holloway Sr., president and CEO, declined to disclose the value or buyer of the pending portfolio sale, but said GMH has received a $2.5-million non-refundable deposit.
He also announced that the company expects to begin construction of two student housing developments this summer. They are in Amherst, NY and Huntsville, TX, and the estimated construction costs are $51 million and $41 million, respectively. Holloway said, "[GMH] is certainly looking to JV on existing and future assets. Regarding future asset sales, he said, "There's nothing we see on the horizon, but there has been some interest."
In the opening quarter, the student housing division reported a net loss of approximately $1 million on total revenue of $51.5 million. That compares with net income of $2.1 million on revenue of $39.7 million for the same quarter of 2006.
First-quarter net income from the military housing division was $6.1 million on total revenue of $25.9 million. That compares with net income of $5.3 million on revenue of $19.9 million in the prior-year quarter.
Holloway closed the conference call by asking for "patience. Our business plan is straightforward," and "greater discipline" is among the strategies in place "for overall improvement of the company and its assets." In early afternoon trading shares of GCT were $10.27 per share on the NYSE, up nearly 1.5% for the day. The 52-week high of $14.18 per share was reached on Oct. 26, 2006, and the 52-week low of $9.14 per share occurred on Jan. 8 this year.
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