Investing.com -- S&P Global Ratings has upgraded its credit rating for Sun Communities Inc (NYSE: SUI ). to ’BBB+’ from ’BBB’, citing the company’s debt reduction and revised financial policy. The upgrade was announced on May 1, 2025.

Sun Communities Inc., a real estate investment trust, plans to use a significant portion of the proceeds from the sale of its Safe Harbor Marinas business to repay its debt. The company expects to receive approximately $5.5 billion after transaction-related costs from this sale. Of this, around $3.3 billion will be used to repay debt, which includes approximately $1.6 billion on its credit facility, $740 million of secured mortgage debt, and the redemption of $900 million of its outstanding senior unsecured notes.

The company has also revised its financial policy leverage target to between 3.5x and 4.5x, a significant reduction from its previous net debt to trailing-12-month recurring EBITDA of 6.0x as of Dec. 31, 2024. This revised policy indicates a more conservative balance sheet than the company’s historical operations.

Aside from debt repayment, Sun Communities plans to use the proceeds from the sale in a few ways. This includes a $520 million special dividend and $1 billion allocated to 1031 exchange escrow accounts for future acquisitions. It also intends to repurchase shares under its newly authorized $1 billion share repurchase program.

The company is expected to grow its portfolio, focusing on manufactured housing (MH) and recreational vehicle (RV) communities. It is believed that there will be sufficient leverage for the company to do so while remaining within its target leverage range.

S&P Global Ratings views the sale of the marina business as relatively neutral to Sun Communities’ business risk profile. Though it results in a smaller and less diversified portfolio, the simplification of the business is seen as a positive. This will allow Sun Communities to focus on its MH and RV portfolios, which have historically performed well throughout full economic cycles.

The stable outlook from S&P Global Ratings reflects their expectation that Sun Communities will continue to benefit from strong long-term fundamentals across its portfolio. This includes consistently high occupancy and solid same-property net operating income (NOI) growth. The company’s leverage is expected to increase modestly toward the midpoint of its financial policy range, with its S&P Global Ratings-adjusted debt to EBITDA expected to be in the high-3x to 4x area over the next two years.

S&P Global Ratings could lower its ratings on Sun Communities if the company’s leverage increases to well above 4.5x due to a more aggressive growth strategy that involves mainly debt-funded acquisitions, or if its operating performance deteriorates significantly. However, the ratings could be raised if the company adopts an even more conservative financial policy and grows its portfolio while demonstrating consistent and favorable operating performance across all of its key segments.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.