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Hightown maintains A3 rating with Moody’s as outlook turns stable
Moody’s has upheld Hightown Housing Association’s A3 long-term issuer rating and upgraded its outlook from negative to stable.
The credit rating agency said the landlord, which manages 8,800 homes in the South East of England, had reduced its exposure to variable rate debt and increased its liquidity.
Hightown completed a £125m private placement in December 2023 and used the proceeds to repay loans at variable rates. Its exposure to variable rate debt fell to 37% of total debt by January 2024 and its liquidity coverage ratio rose to 1.3x. Moody’s said this was a “substantial improvement” from 52% and 0.7x respectively as of June 2023.
The housing association’s updated liquidity policy, which requires maintaining enough liquidity to cover the forecast net cash flow for the next 18 months, now “aligns more closely with sector norms”, Moody’s said.
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At the same time, the ratings agency affirmed Hightown’s Baa2 baseline credit assessment. Moody’s report said both the Baa2 and A3 rating were due to Hightown’s “strong and predictable operating margins, simple group structure and focus on tenures with high and stable demand profiles, particularly social rent, care and supported housing and shared ownership”.
Hightown’s operating margin was 31% in 2022-23 and Moody’s “expects it to gradually rise over the coming years”, supported by a return to Consumer Price Inflation-linked rent increases in fiscal 2024-25 and “relatively limited investment requirements on existing properties” compared with peers.
The report noted that nearly all of Hightown’s stock already has an Energy Performance Certificate rating of C or above, while other housing associations need to retrofit an average of 30% of their stock.
However, Moody’s added that Hightown’s “substantial” development programme, with 2,200 homes to be built over the next five years, “will continue to weaken its debt and interest coverage metrics”.
These metrics will remain “weak relative to A3-rated peers”, with gearing at 64% in 2023-24 and 204-25 and debt to revenue averaging 5.8x over the next three years.
It added that Hightown’s rating could be downgraded if it saw “a prolonged weakening in operating performance, debt and interest costs growing more quickly than forecasts or weaker liquidity”.
Lower government support for the sector or “a dilution of the regulatory framework” could also lead to a lower rating.
David Bogle, chief executive of Hightown, said the upgrade to a stable outlook “reflects our strong financial management and the agility to adapt to changes in the market”.
Hightown has an annual turnover of £136m and aims to grow its portfolio through development to 10,000 homes by March 2027.
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