You are viewing 1 of your 1 free articles
S&P flags landlord’s ‘aggressive’ spending on stock improvements
A 10,000-home landlord has been told that its financial metrics could weaken due to its “aggressive strategy” to invest in existing stock, after being handed its first rating from S&P.
Hertfordshire-based Settle has been assigned a debut BBB+ rating and a stable outlook from the ratings agency.
Under S&P’s system, a BBB rating is an investment grade and means an entity has “adequate capacity to meet financial commitments”, but is “more subject to adverse economic conditions”.
S&P said it expected Settle to benefit from strong demand for social housing and “improved operating conditions, with rent increases outpacing inflation”.
But the agency added: “Despite solid rent growth, what we view as management’s aggressive strategy to maintain large investments in existing stock, alongside its pipeline of committed development, will weaken the financial metrics.”
In its last reported full year to March 2023, Settle saw its post-tax surplus fall by a fifth to £10.9m off an increased turnover of £78.5m.
READ MORE
S&P said it expected Settle’s debt metrics to remain “weak” over the next two years as the landlord increases its borrowing to pay for 300 new homes a year.
Last summer, Settle renewed a revolving credit facility with Santander and added £50m to it, bringing the total to £125m.
In its assessment, S&P said Settle’s spending on existing homes to improve quality and boost energy efficiency will also remain “well above historical spending and depress Settle’s financial performance over the next two years”.
“In our view, Settle’s financial strategy is more ambitious and reflects a higher risk appetite than other rated housing providers, which has led to weaker financial indicators and has reduced its ability to withstand external shocks,” the agency said.
However, S&P said it believed Settle will “maintain strong liquidity to support its operations”.
The agency pointed to Settle’s “strong demand and focus on traditional social housing rentals” which “support the group’s credit quality”.
On its stable outlook, S&P said this was due to Settle’s solid demand and revenue increases, helped by extra homes, which will “offset heightened risks from large investments in existing stock and development of new homes”.
The agency added: “This should prevent any further weakening of its financial indicators.”
Gavin Cansfield, chief executive of Settle, said: “The BBB+ rating reflects the conscious decision we have taken during recent years at Settle to substantially increase our investment in existing homes, alongside maintaining our commitment to developing new affordable homes.
“Our credit rating reflects our commitment to progress this investment alongside our development pipeline, part of which is focused on delivering much-needed regeneration in some of our largest neighbourhoods."
He added: “In common with all businesses, including housing associations, we continue to closely monitor the external environment and work with colleagues, our board and partners, to ensure we progress all commitments in the most responsible way.”
Settle currently has a G1/V2 with the English regulator. It was among a string of landlords downgraded to a V2 for financial viability in 2022 as the Regulator of Social Housing took action to reflect the wider economic challenges.
Sign up for our development and finance newsletter
Already have an account? Click here to manage your newsletters
