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S&P affirms A credit rating for large South of England landlord
Rating agency S&P has maintained a credit rating of A for Aster Group, as the landlord’s cuts to development spending mean debt is set to rise more slowly than expected.
As a result of the development cutbacks, S&P affirmed its A long-term issuer credit rating for Aster, as well as its A-1 short-term issuer rating and a stable outlook.
It also confirmed an A issue rating on the senior secured debt, and £1bn senior secured medium-term note programme issued by Aster Treasury.
Despite cost pressures from maintenance and repairs spending, S&P said the landlord’s “mitigating actions will help financial indicators recover from a weak position” in 2023-24, including its plans to reduce spending on new developments.
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“While the group continues to develop new homes, we understand that Aster has reduced its development targets, which we think will slow the debt build-up,” the agency said.
Alongside disposals, S&P expects Aster’s debt metrics to “gradually strengthen” as a result of these actions.
“We expect Aster will tightly control the investment while ensuring its properties meet regulatory requirements,” it said.
Aster’s annual results for 2023-24 showed a 35% fall in income from first-tranche shared ownership sales in its half-year, as it warned the market remained “challenging”.
S&P noted that while Aster’s sales exposure was “largely skewed” towards shared ownership, the landlord had “tightened its risk tolerance” to contain sales income below one-third of total adjusted revenue over the next two to three years.
“We also anticipate the projected rental growth will exceed inflation, which will mitigate the impact from the group’s investment in existing homes and lead to a gradual strengthening of Aster’s non-sales-adjusted [earnings before interest, tax, depreciation and amortisation (EBITDA)],” S&P said.
This is expected to drive Aster’s adjusted EBITDA margins beyond 20% in the next two to three years.
The rating agency said it could downgrade the landlord if it “fails to control investments in existing assets and new home development” and “cannot manage challenges associated with integrating recently merged entities”.
In 2022, Aster merged with Hampshire-based disability charity Enham Trust. Since 2019, the landlord has also completed mergers with East Boro Housing Trust and London-based care provider Central and Cecil.
While the organisations Aster has merged with have weaker financial profiles, S&P believes the landlord has “sufficient expertise and experience to manage the risks that come with this, although integration benefits might take time to materialise”.
Alternatively, S&P could upgrade the ratings should Aster show a “track record of solidly strengthening financial indicators on a sustained basis”.
Last month, the Regulator of Social Housing (RSH) maintained Aster’s viability and governance gradings at V1 and G1.
Chris Benn, chief financial officer at Aster, said: “We’re pleased that our credit rating has been upheld coming shortly after our G1/V1 status was reaffirmed by the RSH.
“Both of these reflect the strong financial management, good governance and continued growth we are delivering.”
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