Investing.com -- Moody’s Ratings has placed the ratings of Sun Communities (NYSE: SUI ) Operating Ltd. Partnership ("Sun") under review for a potential upgrade. The review follows Sun’s announcement on February 24, 2025, of a definitive agreement to sell its Safe Harbor marina business to Blackstone (NYSE: BX ) Infrastructure for $5.65 billion. Prior to this announcement, Sun’s Baa3 issuer rating and Baa3 backed senior unsecured rating had been considered stable.
The sale of the marina business is expected to be completed in the second quarter of 2025, pending regulatory approval. Sun plans to use the proceeds from the sale for debt repayment, distributions to shareholders, and reinvestment in its core businesses.
The review of Sun’s ratings is reflective of the potential for significant improvement in the REIT’s leverage metrics, should the acquisition be completed as planned. Sun anticipates that its pro forma net debt/EBITDA will be approximately 2.5-3.0x at closing, a considerable reduction from over 6.0x at the end of 2024.
Sun’s Baa3 issuer rating is indicative of the REIT’s position as the industry-leading owner and operator of manufactured housing ("MH") and recreational vehicle ("RV") resorts. This standing is supported by a historically stable balance sheet with moderate leverage, high occupancy, low operating expenses and capital expenditure requirements, and good embedded growth through annual rental rate increases.
The review for upgrade will primarily focus on Sun’s business profile and capital structure following the transaction. It is expected that Sun will use the proceeds from the sale of the marina business to substantially reduce leverage and secured debt. The sale is also expected to improve other key metrics, including EBITDA margins, given that the marina business generates nearly half of its revenues from lower-margin services business. The transaction will also streamline Sun’s business profile by focusing on its core MH and RV portfolios.
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