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EDMC cuts 200 jobs nationwide, sells Art Institute of Pittsburgh building

| Tuesday, April 1, 2014, 2:39 p.m.

Education Management Corp. on Tuesday disclosed more layoffs and the sale of its Art Institute of Pittsburgh building — the latest moves to free up cash for student scholarships and combat slumping enrollment.

The Downtown company, the second-biggest operator of for-profit post-secondary schools, said it eliminated about 200 jobs nationwide, including about 15 in Pittsburgh. It completed the sale of the Art Institute building, for which it received just under $10 million. It will lease the space for the next three years.

The beleaguered operator of for-profit schools said most of the layoffs were at its Art Institutes. The cuts affected faculty and staff positions, said spokesman Chris Hardman. Most of the local layoffs were at the Art Institute of Pittsburgh, Downtown, he said.

“This action is part of our efforts to offer students a great learning experience and keep it affordable. We have to maintain a close alignment between resources and market demand,” Hardman said. “So we had to make the difficult decision to lay off people at the Art Institutes and the other locations.”

Education Management operates more than 50 Art Institutes nationwide. Employees were notified on Monday.

The company has made several rounds of layoffs in the past year but Hardman didn't have the total number of employees affected. Forty employees in Pittsburgh were laid off on Feb. 18, and the company cut several hundred in October without announcing a specific number. In July, as many as 90 workers were laid off from its corporate services operation Downtown.

Analysts say Education Management and other for-profit school operators are in a shrinking industry, and they are doing their best to survive. Education Management has more debt — about $1.3 billion as of Sept. 30 — than its competitors, so it's more aggressive on raising cash. Its stock closed at $4.92, up 5 cents, but has plunged 51.2 percent this year.

“Given the many headwinds EDMC and the industry are facing — improving economy, regulatory pressures, increasing competition — any growth is still a ways off,” Jeffrey M. Silber of BMO Capital Markets in New York, said in a report in February.

Trace A. Urdan of Wells Fargo Securities in San Francisco, said Education Management's actions are part of the process of cutting costs in response to declining student enrollment.

“Overall demand has been weak, and they are staffing appropriately,” Urdan said. “It's just them trying to be as profitable as they can without cutting to the bone.” Managing real estate is not the company's core business, and sale-lease backs raise cash, and the market “likes to see them maximize cash,” he said.

The buyer of the Art Institute building is M&J Wilkow Ltd. of Chicago. Martin Sweeney, vice president of acquisitions, said the price was “under $10 million but more than $9.8 million” but would not give an exact price.

The purchase is M&J's third major purchase in the region. In 2012, it acquired the Waterfront shopping complex in Homestead, Munhall and West Homestead in a partnership with BIG Shopping Centers USA of California for a reported $110.1 million.

In July, M&J purchased the Federal Reserve Bank building, Downtown, for $3.75 million, and then sold it for $6.98 million in November to Drury Hotels Co. of St. Louis, which plans to convert it into a hotel.

Sweeney said Art Institute signed a three-year lease to stay in the nine-story building at 420 Boulevard of the Allies. It will pay rent of $1.9 million in the first year, documents show.

Education Management's Hardman declined to discuss financial details, but said, “We remain committed to having the Art Institute in Pittsburgh and will keep all of our options open for future locations.”

The company has reported two straight years of losses. Enrollment dropped 9 percent last year to 120,920 students at its 110 schools in the United States and Canada. Progress is being made on cutting costs by between $100 million and $125 million by June 30, the end of its current fiscal year, Hardman said.

CEO Edward H. West has said that in the June-December period, students at Art Institutes received $48 million in scholarships, up 35 percent from the same period a year ago. At all of its schools, Education Management gave $70 million in scholarships, up 50 percent, during the period. For the year ending June 30, its expects to give $140 million, up 45 percent, West said.

Education Management has about 23,000 employees across the United States, including about 2,200 in Pittsburgh.

Trib Total Media staff writer Sam Spatter contributed to this report. He can be reached at 412-320-7843 or sspatter@tribweb.com. John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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