UPDATE: Apollo Group Enters Sale-Leaseback For Headquarters
March 24 2011 - 7:22PM
Dow Jones News
Apollo Group Inc. (APOL), the nation's largest for-profit
college by market capitalization, sold its 600,000 square foot
headquarters in Phoenix for $170 million to a privately-held real
estate company.
Under a sale-lease back agreement, the company will continue to
occupy the sprawling campus that is home to three mid-size office
buildings and two parking facilities. The deal comes as Apollo
continues to shave costs amid student enrollment drops at its
college campuses and pending regulatory changes. The deal also
reflects rising demand for sale-lease back transactions from
companies who don't want the cost burden of operating and
maintaining their real estate, but want to stay as long-term
tenants.
According to a securities filing, Apollo agreed to sell its
headquarters to a unit of Cole Real Estate Investments, a
non-traded real estate investment trust based in Phoenix. Apollo
then will lease the properties back at an annual rental rate of $12
million, with 2% increases each subsequent year. Apollo expects $28
million in gains on the sale, to be realized throughout the life of
the lease. The lease, with an initial term of 20 years, has four
five-year renewal options.
"We are taking many steps to optimize the structure of our
current real estate portfolio, and we will continue to execute on
opportunities to improve our space utilization and market leasing
terms," Apollo spokesman Manny Rivera said in an emailed
statement.
Apollo, whose schools include University of Phoenix, has been
trying to cut costs as its student body shrinks and marketing
expenses increase. The company tightened its admissions standards
after it and peers were criticized for lax practices and poor
student-loan repayment rates.
Apollo also is facing higher advertising costs and more
competition in attracting high-quality students who stand a chance
of completing the programs. In January, Apollo reported fiscal
first-quarter new-student enrollment tumbled by 42.4%, with overall
enrollment off 3.8% to 438,100.
Apollo reports fiscal second quarter results on Tuesday.
"It's a very attractive deal from our standpoint [because it's]
a strong tenant [with] built in rental growth," Tom Roberts, head
of real estate investments at Cole, said in an interview. He added
that Cole, which owns over 42 million square feet of commercial
real estate across the country, plans to make $3 billion worth of
acquisitions of office, industrial and retail properties this year.
Such acquisition volume is $500 million more than the firm made in
2010.
Roberts said rising values in commercial property is fueling
deals like the one inked with Apollo. "We think there will be a lot
more product in the market," this year, he said.
The Apollo purchase marks Cole's largest property in Phoenix to
date.
-By Melissa Korn and A.D. Pruitt, Dow Jones Newswires;
212-416-2271; melissa.korn@dowjones.com
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