Sun CommunitiesInc.'s acquisition of Carefree Communities Inc. will greatly increaseits exposure to California and Ontario, as well as further solidify its positionin Florida, where the company already sees high demand, according to an SNL RealEstate analysis.
Sun Communities announcedthe deal March 22, agreeing to acquire Carefree Communities from an affiliate ofCenterbridge Capital Partners II LP and its related entities for roughly $1.68 billion.The transaction is expected to close no later than July 9.
Carefree Communities owned 103 manufactured home and recreationalvehicle communities as of April 1, comprising 27,554 manufactured home and recreationalvehicle sites, as well as an additional 2,900 sites suitable for development.Of these sites, 5,054 were in Ontario, 4,885 sites were in California, and 15,901in Florida. Once the acquisition comes to fruition, the combined entity's top threeregions will include 42,940 sites in Florida, 24,126 sites in Michigan and 7,136sites in Texas.
To help fund the acquisition, Sun Communities a common stock offering of 6,037,500shares at a price of $66.50 per share, netting about $385.3 million on March 30.In addition to this common stock offering, the remaining funds for the acquisitionwill be financed through a $225 million stock issuance to Centerbridge Capital,as well as a combination of cash on hand and lines of credit. Sun Communities willalso assume approximately $1 billion of existing Carefree Communities' debt.
Throughout the past year, Sun Communities and other publiclytraded manufactured home REITs have outperformed the SNL U.S. REIT Equity index.As of April 1, Sun Communities generated a one-year total return of 12.90%, comparedto a total return of 4.82% generated by the SNL U.S. REIT Equity index.
While Sun Communities price saw a 1.99% drop on March 23, theday following the announced merger, the company has since seen a steady increasein its price, closing at $71.75 on April 1, 4.96% higher than the company's priceprior to the announcement.
During the 12-month period ending April 1, Sun Communities tradedat a higher premium to NAV than the SNL U.S. REIT Equity index for the entiretyof the year. As of April 1, the company closed at a 4.2% premium to NAV, 5.3 percentagepoints higher than the SNL U.S. REIT Equity index, which closed the day at a 1.1%discount to NAV. When compared to its peers, Sun Communities traded at a lower premiumthan Equity LifeStyle Properties Inc.,which closed April 1 at a 24.64% premium to NAV, but traded at a higher premiumcompared to UMH Properties Inc.,which traded at a 7.88% discount to NAV.