Yorkshire landlord has credit rating lowered to A- due to ‘ambitious investment strategy’
S&P Global has lowered Shipley-based landlord Incommunities’ credit rating from A to A- because of what the ratings agency described as an “ambitious investment strategy”.
S&P said it anticipates that the 23,000-home landlord’s large investments in existing and new homes will structurally weaken its financial metrics compared to its previous expectations.
This negative outlook comes after the association revealed in January that it had spent almost a third less on development year-on-year, while reporting a 34% drop in its surplus.
Its latest half-year results also revealed plans to invest £49.5m in its development programme and deliver 248 new homes throughout 2024-25.
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In its latest rating action, S&P said: “The downgrade reflects our view that Incommunities group’s strategy, which targets elevated investments in existing homes and debt-funded development of new homes, is ambitious.
“We think pursuing it would stretch the group’s financial and operational capacity and would weaken the financial metrics against our previous forecast.”
The ratings agency put this down in part to the landlord catching up on fire remediation works in its high-rise buildings while increasing other repair costs.
It has also factored in additional costs being found as Incommunities continues to survey its stock alongside “only a modest recovery as costs stabilise” due to improved stock quality.
The association’s focus on social rent should “somewhat offset” the risk of its strategy and contain its exposure to sales activities, which are limited to shared ownership.
John Wright, executive director of finance at Incommunities, said: “The latest rating reflects the wider financial challenges affecting the whole sector, but it also shows the importance we have placed on investing in our properties to improve the quality and safety of our homes.
“We believe our investment decisions mean we’ve got the right balance to ensure that we continue to meet the needs of our customers.”
S&P explained that it could lower the rating again over the next 24 months if the landlord’s financial metrics “do not recover as forecast”, or if “there was a reduced likelihood of timely and sufficient extraordinary support from the UK government”.
The rating agency’s outlook on Incommunities could be revised from negative to stable if the housing association weathers the cost pressures while balancing the investments in existing and new homes.
Additionally, S&P lowered its issue rating from A to A- on the £250m senior secured bond issued by Incommunities Treasury in March 2019.
“The negative outlook reflects the risks that the group will not effectively balance its costs pressures or that its strategy will lead to higher debt funding than we currently anticipate. We think this would reflect markedly reduced financial flexibility,” S&P said.
This outlook follows the landlord securing £110m in funding from NatWest in October 2024 to support its plans to build 1,500 new homes in five years.
This is on top of £50m in funding in its first agreement with a major Dutch bank a few months earlier.
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