Fitch downgrades outlook on social housing REIT to negative

Bolton-based My Space currently has the regulator’s lowest ratings of G4/V4, while the Charity Commission launched an investigation into the provider in 2022 over “potential conflicts of interest and possible mismanagement of funds”.

According to Fitch, Triple Point is negotiating a credit agreement with My Space and working with the group to increase its rent collection, failing which it will transfer the leases to another provider. My Space accounts for 8.1% of Triple Point’s rent.

“It is unclear if these transfers will reset the lease rents to lower levels and if previous rent arrears will be paid in full,” Fitch said in its report. 

Parasol Homes was found non-compliant in 2021, but does not have grades with the Regulator of Social Housing as it operates fewer than 1,000 homes. 

Last year, Triple Point disclosed that Parasol, which has 246 homes with the REIT, had failed to pay some rent in the second half of 2022 due to “operational issues”. It accounts for 9.7% of Triple Point’s rent.

Triple Point is currently transferring leases from Parasol to another provider, Westmoreland Supported Housing.

Triple Point’s provision for credit losses was £4.6m in 2023, of which £3.6m was related to unpaid rents in 2023. This was equivalent to 9% of Triple Point’s gross rental income in 2023, the rating agency said.

Fitch said Triple Point’s rent arrears had so far “not been detrimental to its credit metrics and the REIT has not breached any loan covenants”.

The REIT, which provides accommodation to around 3,400 tenants with special needs, is also reviewing its investment management arrangements. Fitch said this will “likely result in lower management fees”.

In its report, the credit rating agency noted that Triple Point benefits from “long-dated leases with inflation-linked rental uplifts and full-repairing and insuring lease terms”.

Fitch said it will either restore the REIT’s outlook back to stable, or could downgrade the ratings when the arrears have been resolved.

“This may include completion of lease transfers from these problematic [registered providers] at either lower or current rent levels, updated rent collection details, and conclusion of the REIT’s investment management review,” the agency said.

In a filing, Triple Point said it was “pleased” that Fitch had reaffirmed its investment grade, long-term IDR of A- and a senior secured rating of A for the group’s existing loan notes.

On the outlook downgrade, it added: “Fitch note that the group’s arrears have not been detrimental to the group’s credit metrics, and that they intend to resolve the negative outlook upon resolution of these arrears (which may include the completion of a transfer of leases, as is currently being progressed by the investment manager), as well as understanding the outcome of the group’s independent review of the investment management arrangements.”

Triple Point declined to comment beyond the filing. My Space and Parasol were also asked for a response.