Domestic, For-Profit, Required, Universities & Colleges - Written by on Tuesday, September 25, 2012 9:00 - 0 Comments

Grand Canyon University Scores A Free Campus, Expands To Massachussetts

Grand Canyon HDR - Grand Canyon National Park Arizona
Photo Credit: Logan Brumm via Compfight

Phoenix-based Grand Canyon University, a Christian university that also has a large online learning cohort, is receiving an unusual windfall: A free college campus to expand in the east coast.

The billionaire Green family of Oklahoma gave GCU a 217-acre site formerly owned by Northfield Mount Hermon School. That school sold its campus to craft store chain Hobby Lobby in 2009. That chain is owned by the Green family, who invested $5 million to upgrade the facilities. And they planned to give it to a Christian institution.

Suitors included Jerry Falwell’s Liberty University. Others wanted to launch a new C.S. Lewis College that used a great books method of study but fund-raising efforts came up short. The two finalists included a missions organization and GCU. Ultimately, the property went to GCU because the Greens thought it had the greatest financial wherewithal to take the campus and keep it going long-term.

GCU aims to start classes at Northfield in fall 2014.

First, the Greens must transfer the property to the nonprofit Scholarship for GCU Students, which will lease it to GCU’s holding company, GCU Education, which trade on the NASDAQ under the ticker symbole LOPE. After a few years, the GCU branch will become an independent university owned by GCU Education according to Mueller. It might be called, “Grand Canyon University, Northeast” or “Grand Canyon University, Moody Campus.”

We are thinking, however, that it’s a bit of a branding problem, though, to name the campus “Grand Canyon” when the Grand Canyon is, in fact, 2,200 miles away from Northfield, Mass.

 G. Jeffrey Macdonald of Religion News Service writes:

“We hope this campus will provide a home for students to find their purpose in Christ and realize their full potential in life,” said Hobby Lobby President Steve Green in a statement on Friday (Sept. 21). “We look forward to seeing what the future holds for this historic campus and for this community.”Grand Canyon University, whose president and CEO Brian Mueller built the for-profit University of Phoenix into a giant with 340,000 online students, is part of a movement to reinvigorate Christian higher education.”
Key to the effort is a for-profit model that relies heavily on tuitions from online students.GCU has 7,000 traditional students on campus in Phoenix, plus another 40,000 online. The vision for Northfield is to host 4,800 residential students and 1,200 commuters. Mueller also envisions thousands of online students in the Northeast visiting the campus for concerts, sporting events and learning programs that last a few days or weeks.
“We like to make our online students feel that they are part of the campus,” Mueller said. “This will give us a home base in the Northeast to help them better identify with Grand Canyon University.” Founded in 1879 by legendary evangelist D.L. Moody, the Northfield campus attracted the Greens to the prospect of reviving Moody’s evangelical legacy in a region known for secular views and liberal politics. But giving away 43 buildings in bucolic New England proved surprisingly challenging.Via The Washington Post 

Melissa Steffan of ChristianityToday writes: 

GCU is unique among Christian schools in that it is for profit, running primarily on investments rather than tuition and donations. GCU made the switch from a non-profit model after it ran up $20 million in debt and otherwise would have had to close down its Phoenix campus, Mueller said.

Instead, GCU drew up a business model and sought investors. The combination of a for-profit model and a commitment to Christian higher education has produced tremendous efficiency and growth, allowing GCU to keep tuition low—only $16,500 per year. After scholarships, though, the average student pays around $7,800, Mueller said.

Bill Ringenberg, Taylor University historian of Christian colleges, says this low tuition rate for a private, Christian university falls far below the benchmark standard set by public, state schools.

“I’ve been dreaming over the years of a lower-cost Christian model, and the benchmark was the idea of a Christian college in every region which would be as cheap and as inexpensive as the state university in that region,” he said. “It’s quite rare; what Grand Canyon is doing is innovative.”

LOJeffrey P. Meuler at Baird Equity Research writes: 

  • Believe the announcement was in line with most investors’ expectations. LOPE was previously named one of two finalists to receive the campus, and we believe most investors viewed LOPE as the likely recipient.
  • Represents significant expansion of LOPE’s ground campus strategy. LOPE plans to open the Northfield, MA campus in the fall 2014 with ~500 students, potentially expanding to 5,000 students by 2018 (in addition to 6,500 ground students at its Phoenix campus, which it expects to expand to 15,000).
  • View the announcement as a “doubling down” on LOPE’s successful ground campus strategy. Could further strengthen the Grand Canyon brand in the Northeast (LOPE’s second-largest geography for online enrollment behind the Southwest) or provide a platform to create a new regional brand, and leverages LOPE’s infrastructure, platform, systems, operational expertise, etc.
  • Management expects to invest up to $150 million in the campus over five years, beginning in the spring or summer 2013.Maintaining our estimates at this time. Modest 2013-2014 EPS dilution possible from lease payments, property tax, initial headcount additions, etc. (but we believed our prior estimates were potentially conservative).
    • We are encouraged that management appears to be taking a cautious approach to leverage the optionality of the campus. Further, timing of ramp up in capex investment in Northfield, MA should largely coincide with ramp down in growth capex requirements of Phoenix, AZ campus.
  • Increasing our price target to $26 (largely due to recent comps multiple expansion), reflecting 16.3x our 2013 EPS estimate; historical average NTM P/E has been 16.4x.

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2012-10-05 16:00

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