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Sun Communities to Buy Jensen's Manufactured Housing Assets

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Expanding its manufactured housing portfolio, Sun Communities, Inc. SUI recently entered into an agreement to acquire a portfolio of 31-community manufactured housing properties, for $343.6 million. This acquisition will be accomplished through the merger of Jensen’s, Inc., which will become a subsidiary of the company.

Specifically, the portfolio comprises 5,230 developed sites and more than 460 additional expansion sites available for development. These communities are situated in eight states, with 35% of the sites in spread across Connecticut. The 77% age restricted portfolio is nearly 92.5% occupied as of the second quarter’s end.

The purchase price of $343.6 million will be paid through a combination of cash and common stock issuance to Jensen’s shareholders. In fact, this includes roughly $8 million for expansion land and adjacent parcels ready for development.

At the closing of the transaction, the purchase price will be modified to include around $60 million in reduction of debt, owed by Jensen’s. Further, Jensen’s shareholders will receive $274.8 million in shares of Sun Communities’ common stock. Also, the balance of the adjusted purchase price will be paid in cash.

The transaction, subject to customary closing norms, will likely close by the end of this year. It is anticipated to be accretive to 2020 earnings. Management believes the high-quality properties that will be acquired are in line with the company’s investment criteria and will enable it to create ongoing value. 

Notably, disciplined acquisition of manufactured-housing community portfolios and RV resorts has helped establish Sun Communities as one of the largest owners and operator of such assets in the United States. In fact, Sun Communities has an interest in a portfolio of 382 communities consisting of more than 133,000 developed sites as of Jun 30, 2019.

The rising housing shortage has likely benefited the manufactured housing sector, and REITs including Equity Lifestyle Properties (ELS - Free Report) and UMH Properties UMH. In fact, it is one of the cheapest, non-subsidized housing options in most markets, and has spurred demand for manufactured houses. Further, the increase in wage among blue-collar workers supported the latest stellar growth for the manufactured housing sector.

Hence, other than these macroeconomic tailwinds, Sun Communities is boosting external growth through strategic acquisitions and expansion transactions.

However, amid favorable demand-supply environment, competition is intensifying. This might make future acquisition opportunities scarce and less accretive.

Zacks Rank and Performance

Sun Communities currently carries a Zacks Rank #3 (Hold). Shares of the company have rallied 17.2% compared with the industry’s growth of 5.7% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same space is Equity Residential EQR. It carries a Zacks Rank of 2 (Buy), presently. The Zacks Consensus Estimate for 2019 funds from operations (FFO) per share has been revised marginally upward over the past month. Also, shares of the company have gained 7.2% in three months’ time. 

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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