Shorts Get Burned: SUI’s $5.65B Deal Proves the Bears Wrong

Summary

• Sun Communities announced the sale of Safe Harbor Marinas to Blackstone for $5.65 billion, significantly deleveraging their balance sheet and improving margins.
• The sale values the marina segment at 21x FFO, higher than SUI's valuation last night, proving the asset's worth and countering short-seller claims.
• Post-sale, SUI's net debt to EBITDA ratio would improve from about 6x to around 3x, if they simply sit on the cash or pay down debts.
• Despite a potential revenue drop, the strategic move positions SUI for stronger financial health and better market performance, outpacing peers and indexes.
• The Q4 2024 earnings report is Wednesday, 2/26/2025, after the market closes. I appreciate that management gave analysts time to digest the huge transaction before the earnings report.

Digging In

Sun Communities (SUI) just pulled ahead of the sector on a great announcement. It’s the kind of announcement that leaves the shorts reeling.

To be fair, there weren’t that many of them. Short interest in SUI remained low. But SUI is the best performing MH park REIT since the initial “short reports”. It also beat the Vanguard Real Estate Index Fund ETF (VNQ).

Background

Sun communities owns three major property types within the United States (and a small portfolio in Europe):

1. Manufactured homes
2. RV parks
3. Marinas

A company called “Blue Orca” launched a short attack. Their “short report” prioritized character assassination, because as every middle schooler knows, if you attack the person instead of the idea, you’ve already won the argument. However, this can be a very effective technique. Few people understand intricate concepts like REIT accounting, but everyone understands “A lawyer wrote down that a government employee who wasn’t available said that the CEO is a bad man.”

Then the report moved on to creating metrics for REIT analysis. Rather than focusing on metrics that REIT analysts use, the report created new metrics for comparison. It capitalized on the fact that people who are not REIT investors won’t know anything about which metrics are actually used for a REIT. Since the audience didn’t know which metrics are useful, they could pick any equation that would create doubt and pretend that it is a useful metric. Since they were using metrics I’ve never seen any remotely competent analyst use, I destroyed Blue Orca’s incompetent attack on Sun Communities.

Today’s Big Announcement

Sun Communities announced:

1. They are selling the entire Safe Harbor Marinas segment to Blackstone (affiliates of Blackstone Infrastructure).
2. The sale is for $5.65 billion in cash. After transaction costs, it should generate $5.5 billion. That represents an estimated book value gain of $1.3 billion.
3. The sale values the segment at 21x FFO. Last night SUI closed at 18.5x consensus FFO. We typically use AFFO for valuation. Both multiples would be higher if we used AFFO.
4. The company is evaluating strategies to be efficient in recognizing the huge gain.
5. If SUI were able to keep the entire amount of cash, it would result in substantial deleveraging. 

Note: If SUI can’t keep all the cash, they could pay out a special dividend. 

How Big Is That?