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Specialist landlord for key workers retains AA- rating
An East London housing association has maintained its AA- credit rating with S&P Global Ratings and its outlook has been upgraded to stable.
Local Space pointed out it had achieved the rating from S&P for the eighth year in a row and claimed to be the only UK housing association to achieve a AA-.
The landlord was set up in 2006 by Newham Council to provide settled temporary accommodation for key workers and people facing homelessness in east London. It now has 2,670 properties across nine local authorities in London and Essex.
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In its report, S&P explained how Local Space’s planned refinancing of upcoming maturities via private placements and its “modest acquisitions programme” will result in “very strong liquidity” and stable debt levels over the next two years.
The ratings agency predicted that interest cover will weaken, but Local Space’s management will “mitigate risk” by adopting a greater proportion of fixed-rate debt.
The landlord’s “unique operating model” and “arrangement with local authorities” will continue to support “strong financial performance relative to peers”, S&P added.
The outlook returned to stable following a period of refinancing which has exchanged variable for fixed-rate funding.
S&P said it could lower Local Space’s rating if the group alters its strategy, leading to “materially weaker financial indicators”. An upgrade would depend on “materially stronger debt metrics”.
“Local Space will uphold its improved liquidity position, underpinned by a strengthening in the group’s treasury planning and reduced acquisition programme that will limit capital needs,” S&P said. “We think Local Space will use flexibility in its capital programme to invest in existing assets.”
S&P predicted Local Space will also grow through its new leasing program with Newham Council. Last year, Local Space agreed to lease 102 new homes originally built for open market sale that had been bought by Newham Council to use as affordable housing.
The ratings agency said Local Space’s financial performance will “modestly weaken” because of Local Space’s expansion into the lower-margin lease programme and inflation affecting repairs costs. However, it said: “We still project the group’s unique long-term arrangements with local authorities will sustain adjusted EBITDA margins considerably higher than peers.”
Josie Parsons, chief executive of Local Space, said the credit rating was due to “our very strong liquidity and stable debt levels, which given the ongoing challenging economic environment is a real achievement”.
She continued: “Crucially it means we’re able to continue to deliver high-quality settled accommodation and help those facing homelessness in east London, working with our partner organisations.”
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