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BPHA retains A+ credit rating but outlook remains negative due to market exposure
Housing association BPHA has retained its A+ credit rating from Standard & Poor’s (S&P), but its outlook remains negative due to its exposure to commercial activities and increasing debt.
The 18,000-home landlord, which operates in the Oxford-Cambridge corridor, was recognised by the agency as having a “strong financial profile” – helped by the region where it owns housing stock – and “excellent asset quality”.
“The strong demand for social housing in its area of operation supports the group’s strong operational metrics compared to peers and high operating margins from traditional lettings activities,” S&P said in its rating.
However, the agency said it is retaining a negative outlook for the landlord and added that over the next two years its “exposure to market-related revenues” is likely to rise.
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Last week S&P warned that 20 associations were at risk of downgrades in the event of a no-deal Brexit, with those exposed to market sales the most “vulnerable”.
While S&P said it expects BPHA to increase its exposure to private sales, this is unlikely to exceed a third of its revenues.
The housing association, which last week reported a 19% drop in annual surplus, is planning to build 3,000 new homes by 2023.
S&P said: “These development for sale activities carry higher volatility and lower margins than traditional social housing lettings (we expect operating margins of around 20% for outright sales compared to 40% on the traditional lettings business), and we forecast that they will weaken the group’s operating margins.”
BPHA’s long-term debt has risen to £774m and S&P expects that to increase by £150m by 2022.
After eight year in his role as chief financial officer, Paul Gray left the association in March as he felt it was “time for a new challenge”.
His replacement, Julian Pearce, who joined last week, said of S&P’s verdict: “It demonstrates our continued strong financial performance and robust governance as we continue to deliver our long-term growth strategy.”
Mr Pearce, chief financial officer at BPHA, said: “We are very pleased with this reaffirmation of our credit outlook, especially in the current uncertain economic climate where the sector has seen a number of downgrades from both S&P and the regulator."
