The Outstanding Investment's Generous Wave Leads to a Rewarding $1.3 Billion Earnings Boost
Sun Communities' Big Splash and Profitable Exit
Real estate investment trust (REIT) Sun Communities (SUI 0.51%) turned heads during the pandemic with its strategic move into the marina sector. This was achieved through the acquisition of Safe Harbor Marinas for around $2.1 billion. This acquisition provided Sun Communities with a solid platform in the fragmented marina sector.
Now, Sun Communities is benefiting from this investment. The REIT has agreed to sell Safe Harbor Marinas to affiliates of Blackstone infrastructure for a staggering $5.65 billion in cold, hard cash. This sale will result in a substantial $1.3 billion profit for shareholders, a clear testament to Sun Communities' shrewd business decisions. Furthermore, the sale will streamline Sun Communities' focus and significantly boost its already robust balance sheet.
Cashing in on the Success
Sun Communities is saying goodbye to 100% of its interest in Safe Harbor Marinas, in exchange for a hefty $5.65 billion. This deal represents a 21 times multiple on the funds from operations (FFO) the business generated last year, a strong indication of its value. The REIT anticipates gaining $5.5 billion in pre-tax proceeds after transaction costs, which it intends to use to bolster its already solid investment-grade balance sheet.
Upon completion of the sale, Sun Communities' leverage ratio will drop from about 6 times to between 2.5 times and 3 times. This will boost its strong investment-grade balance sheet, further securing its BBB/Baa3 bond ratings.
The REIT estimates a gain of $1.3 billion on its four-year ownership of Safe Harbor. Sun Communities had initially purchased the business during the pandemic for a reasonable $2.1 billion. Safe Harbor, now under Sun Communities, has expanded significantly - with its portfolio increasing from 99 properties and 30,000 wet slips to 138 marinas and 49,000 wet slips.
Sun Communities is examining ways to minimize the tax impact of this gain for its investors. Potential strategies include paying a one-time special dividend or engaging in real estate exchange transactions to expand its core manufactured home and RV platforms.
Returning to its Roots
The acquisition and growth of Safe Harbor Marinas have been a resounding success for Sun Communities. However, the sale of the business allows Sun Communities to redirect its focus on its core North American manufactured housing and RV community portfolios. These properties are expected to generate 90% of its net operating income (NOI) moving forward. The remaining 10% comes from its U.K. holiday parks.
Compared to marinas, these properties – primarily due to lease-based revenues – provide more stable annual income streams. Sun Communities has recorded positive same-property NOI growth every year, even during major recessionary periods, and has maintained a 5.2% compound annual same-property NOI growth rate since 2000.
By offloading its marina portfolio, Sun Communities is able to refocus its strategy on its core manufactured home and RV communities. The REIT will have significant financial flexibility after the deal, enabling it to ramp up acquisitions and expand its existing communities, thereby creating even more value for investors.
Capitalizing on a Successful Investment
Sun Communities' decision to invest in Safe Harbor Marinas during the pandemic has proven to be a wise move. The REIT is now reaping the rewards of this investment, which will strengthen its balance sheet and allow it to focus on growing its robust manufactured home and RV communities. Sun Communities is well-positioned to continue creating value for its shareholders in the years ahead.
Enrichment Data:
Acquisition Impact- Sun Communities initially acquired Safe Harbor Marinas in October 2020 for approximately $2 billion. The acquisition expanded Sun's portfolio, diversifying its operations into the marina and superyacht servicing sector.
Sale Impact- The sale of Safe Harbor Marinas to Blackstone Infrastructure is expected to result in a significant reduction in Sun Communities' balance sheet debt, enhancing its financial flexibility and margin profile.- By divesting Safe Harbor, Sun Communities is refocusing its strategy on its core MH and RV segments. This move positions the REIT for long-term growth and enhanced returns for stakeholders, aligning with its goal of optimizing asset operations and improving its leverage profile.
- The acquisition of Safe Harbor Marinas, a significant investment in the fragmented marina sector, was a strategic move by real estate investment trust Sun Communities, which cost around $2.1 billion.
- Finance-focused firm Blackstone infrastructure will acquire Sun Communities' entire stake in Safe Harbor Marinas for $5.65 billion, enabling Sun Communities to boost its balance sheet.
- With the sale of Safe Harbor Marinas, Sun Communities expects to achieve a substantial $1.3 billion profit, demonstrating the investment's potential for generating strong returns.
- By offloading its marina portfolio, Sun Communities will have the financial flexibility to focus on its core business, investing in and expanding its manufactured home and RV communities, resulting in further value creation for shareholders.