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Sun Communities Conference Call to Discuss Purchase of Carefree Communities: Full Transcript

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Operator:

Ladies and gentlemen, thank you for standing by and welcome to the Sun Communities call regarding acquisition of Carefree Communities. At this time, management would like me to inform you that certain statements made during this conference call which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can provide no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in this evening's press release form and from time to time in the Company's periodic filings with the SEC. The Company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release.

And with that, I'd like to turn the call over to Gary Shiffman, Sun Communities Chairman and CEO.

Gary A. Shiffman: Chairman and Chief Executive Officer:

Thank you Operator and thank you to those participants who are joining on today's call. I am very pleased to be announcing Sun Communities acquisition of Carefree Communities. Today's announcement marks another milestone in the ongoing growth and evolution of the Sun portfolio.

So, it's approximately $1.68 billion transaction, further demonstrates our ability to accretively expand the Company through strategic acquisitions. Finding, acquiring and integrating high quality portfolios into our Company is one of Sun's key competencies and we are confident that the Carefree Communities acquisition will be further evidence of that.

We're extremely disciplined in our capital allocation process and this transaction is in line with that strategy. In short, that further improves the quality of our already best-in-class portfolio and reinforces our position as a dominant presence in our industry.

The Carefree portfolio consists of 103 communities with more than 27,000 sites of which 36% are manufactured housing sites and 64% are recreational vehicles sites. 51% of the sites are age-restricted and within the RV portfolio, 60% of the sites are on annual seasonal contracts.

Carefree immediately has a positive impact on a number of our key portfolio metrics. Pro forma for the acquisition, the combined portfolio average monthly rent per manufactured home site will increase by approximately 3.5%.

Our stable same site occupancy level will be 94% within the manufactured home segment of our portfolio, giving us continued opportunity for occupancy growth.

In terms of geography, Carefree's portfolio increases our presence in key high-barrier prime coastal markets. This includes 78 communities in Florida and California, as well as the addition of two top-ranked RV resorts in North America, Sherkston Shores, outside of Toronto, Canada, and Sun-N-Fun in Florida.

The transaction increases our presence in Florida to 37% of total sites from 26% currently, and our presence in California will increase to 5% of our portfolio from under 1% pre-acquisition. Carefree also expands our age-restricted communities to 33% of our total portfolio, up from the current 25%.

From a growth perspective, Carefree has approximately 3,000 expansion sites, an increase of 42%, bringing our total available sites through expansion to more than 10,000. It also brings an additional opportunity in terms of converting transient RV sites to annual revenue contracts by adding approximately 7,100 transient RV sites to the portfolio. You can find further details of the Carefree portfolio in our SEC filings and the Investor Presentation on our website at suncommunities.com.

At the close of the transaction, Sun will become the largest owner/operator of manufactured housing sites in the nation. Post-closing, we anticipate achieving further operational, sales and marketing benefits that come with increased scale. This acquisition solidifies Sun Communities' best-in-class portfolio and operating platform.

Since May 2011, we've acquired communities valued in excess of $2.6 billion, increasing the number of sites and communities by 84% and 69% respectively.

Importantly, we've proven time and again our ability to add value and enhance growth at our acquired communities once we bring them on to the Sun platform. As acquired properties are integrated into the Sun platform, our team is able to create and extract additional value by applying our operating expertise, which is translated into strong earnings and cash flow growth for our shareholders.

From an operational perspective, we developed a best-in-class professional management platform, along with skilled expense management which allows us to manage our properties in an extremely efficient manner.

From a sales and marketing perspective, our productive call center and digital marketing outreach drives and helps sales efforts and maximizes site net revenue in our RV communities.

We've also hold effective strategies such as our home sales and rental program and have a demonstrated expertise in successfully delivering expansion sites as well as selectively repositioning communities where appropriate. These unique capabilities have driven successful increases in earnings and value from both of our existing assets and the acquired portfolios.

For the 26 communities acquired in 2011, over the five-year period, we're able to increase occupancy by more than 15 percentage points and grow NOI at a 13.6% compounded annual growth rate.

Similarly, for the 11 communities we acquired in 2012, we've increased occupancy by 670 basis points in the four years since we acquired them and have grown NOI at an 8.9% compounded annual growth rate.

It's with that track record of accelerating growth in acquired communities that we expect once we're able to fully integrate the Carefree acquisition, our team will deliver increased value to our shareholders over the similar period of time.

The aggregate purchase price for the Carefree acquisition is approximately $1.68 billion subject to a net working capital adjustment at closing and we are funding it through a few different sources.

First, we currently intend to assume approximately $1 billion of existing Carefree debt. So, we are in discussions with various other lenders as we consider refinancing all or a portion of the in-place with new debt. We are also issuing the seller $225 million in stock at an issuance price of $67.57 per share, which was based on the trailing 30-day volume weighted average price of the company's stock, and was actually negotiated as part of the larger stock purchase agreement with the seller. The balance, approximately $468 million in cash will be financed with a combination of cash on hand, lines of credit and the announced equity offering.

Since we began Sun's latest growth phase in 2011, we have committed to growing our business through a combination of organic same store growth and via the acquisition of extremely high quality assets and portfolios at an accretive leverage-neutral basis. As part of the Carefree diligence and underwriting process, we've identified assets that have incremental growth opportunities, could benefit from targeted capital expenditure plans, and potentially be an attractive JV opportunity for some parties that are looking at -- that have looked at acquiring Carefree.

As such, the announced equity offering solidifies our funding plan for Carefree while providing us the flexibility of ultimately covering our long-term financing plan to our long-term business plan for the portfolio.

We expect this acquisition to be accretive to FFO per share over the next 12 months after closing and anticipate the closing of the acquisition will occur no later than July 9, 2016.

Finally, as we've shown with our prior acquisitions, we expect the integration will go smoothly and allow us to maximize the embedded growth of the combined portfolio.

Again, we're very excited about the pending transaction and unfortunately because of all the moving pieces, we cannot take questions and answers on this call. We do look forward to sharing our progress with you as we approach the closing date. And again, I want to thank you all for joining us today and for your continued support, and wish that everyone has a good evening. Thank you Operator.

Operator:

And that does conclude today's conference. Thank you for your participation.

Posted-In: M&A News

 

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