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Strong property demand sees Bromford upgrade credit rating outlook
A large West Midlands-based housing association has seen its outlook move from ‘negative’ to ‘stable’ thanks to “strong demand for its properties”.
In the latest credit rating update for Bromford, agency S&P said that an improvement in core metrics, including “the upward trajectory of profitability margins”, despite the weakening operating environment was key to restoring Bromford’s stable outlook.
This was driven by a strong demand for its rental properties, as reflected in the landlord’s average social and affordable rent, which S&P estimated was close to 60% of the average market rent in the areas it owns homes.
It comes after the agency had warned last January that a higher-than-anticipated expenditure for Bromford’s existing asset base, combined with higher debt intake for development capital expenditure, could pressure its debt metrics beyond current estimates.
But 12 months on, S&P commended the 45,000-home landlord for its “strong performance of the underlying social housing portfolio”, while proactively de-risking its business plan to reduce its exposure to sale activities and increasing its grant funding through its latest strategic partnership with Homes England.
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S&P continued: “The tenure mix of the updated plan has also been revised favourably to incorporate a higher delivery of affordable homes, thus reducing the proportion of high-risk sales activities. We estimate that over our forecast period, sales exposure will average about 15% of revenues, well below the group’s golden rule of 30%.
“Liquidity remains a rating strength for Bromford, underpinned by the group’s comprehensive liquidity policies and golden rules. Over the next 12 months, we estimate sources of liquidity will cover uses by 2.2x.”
The agency also noted that Bromford has boosted its development plan, which is now expected to deliver around 600 additional homes by 2029 – 5% higher than its previous target.
S&P’s report also affirmed the ‘A+’ long-term issue ratings on its £300m and £250m senior secured bonds issued by Bromford.
The fixed-rate 30-year bond was issued in April 2018 at a price of 1.35% above gilts, the cost of government borrowing, to help fund its 1,000 homes per year development programme.
Imran Mubeen, director of treasury at Bromford, said the landlord had to strike a fine balance between managing increasing levels of investment to deliver its business plan in an ever-evolving operating environment, while also improving core financial metrics and profitability.
He added: “While we continue to benefit from strong levels of liquidity, we will be seeking over half a billion of additional investment over the next seven years. Our sector-leading dual credit ratings, together with our accredited sustainable finance framework, provide the perfect platform to return to the capital markets to execute our funding strategy.”
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