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Large Northern landlord has outlook revised from ‘stable’ to ‘positive’
Large Northern housing association Karbon Homes has had its outlook revised from ‘stable’ to ‘positive’ by a major credit ratings agency.
S&P said it revised the outlook for the 30,000-home landlord due to its expectation that Karbon’s “rental revenue from acquired units and development grants will reduce the group’s debt funding need more than we had assumed”.
This will result in “relatively strong credit metrics”, S&P said.
At the same time, the landlord had its ’A’ long-term issuer credit rating affirmed on the £250m bond it issued in 2018.
Karbon, which operates across the North East of England and Yorkshire, “continues to see strong demand for its properties”, said the credit agency, despite its average social and affordable rents being relatively high, at more than 75% of the average market rent in the region.
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S&P highlighted a number of recent additions to Karbon’s portfolio, including the 1,800 homes from Byker Community Trust when it joined the landlord in April 2021.
More recently, Leeds and Yorkshire Housing Association joined Karbon in December 2022 by merging with Karbon’s subsidiary York Housing, adding more than 1,600 homes.
As a result of the merger, Karbon launched a new landlord from the two providers called 54 North Homes.
S&P said: “While Leeds and Yorkshire Housing Association brought debt to the group, our view is that it would have no material impact on Karbon’s credit metrics because it would be offset by the earnings from the additional rental units.”
On existing stock, the credit agency said it understands the landlord is making its investments with its financial policies in mind, to ensure it maintains solid headroom within lenders’ covenants.
Karbon could have its rating raised in the next two years if it maintains very strong metrics despite ramping up capital expenditure to deliver a large development plan, while integrating acquired units and increasing investment in existing homes.
However, S&P could revise the outlook downward again if an expansion of Karbon’s development plan or acquisition of additional homes were to require more debt funding, which could weigh on its debt metrics.
S&P added: “The outlook revision reflects our view that Karbon’s adjusted debt metrics and liquidity are relatively strong compared with those of many rated peers. We consider that, amid external regulatory and economic challenges, maintaining key financial metrics could reflect positively on our assessment of the group’s management.
“This would particularly be the case if Karbon integrates recently acquired subsidiaries while investing more in its existing stock and ramping up CapEx [capital expenditure] to deliver its development plan, without materially affecting its very strong debt metrics.”
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