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Aster credit outlook downgraded due to market sale exposure
Aster Group has seen its financial outlook downgraded to negative by a ratings agency due to an increase in its planned development of shared ownership and market sale properties.
Ratings agency Standard & Poor’s (S&P) affirmed the 29,000-home association’s overall rating of A+ but revised its outlook from stable to negative, due to increased exposure to the open market, less predictable revenue and lower forecast margins.
S&P predicted that over the next three years a third of Aster’s revenue would come from sale-related activities and this would lead to increased risk to the business as consumer confidence wanes, employment levels come under threat and interest rates likely rise.
The report said: “We think that significant exposure to sales activities limits visibility and predictability of future earnings in a way not typically seen with a traditional housing association providing mainly social rent properties.
“In our view, exposure to sales activities reduces the ability to withstand external risks.”
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Last December, Aster was given a stable outlook rating by S&P, with the agency saying the organisation continued to benefit from a “strong enterprise profile and strong financial profile”. The report also predicted that market-related activities would represent around 15% of Aster’s total revenues by the end of 2020.
S&P said earlier this month that it would downgrade half of the housing associations it rates if the UK leaves the European Union without a deal in March.
Aster’s A+ rating, which includes the £450m senior secured bonds issued by the association, was affirmed.
This puts Aster in the second tier of the 36 associations rated by S&P, with 16 others given an A+ rating. Among these, eight have a negative outlook.
S&P has consistently warned over the growing sales exposure of the sector – particularly given Britain’s looming exit from the EU.
Aster issued an initial £250m, 30-year bond in 2013. This was added to in May 2018 with an additional £50m raised through the capital markets, and £150m retained for later issuance.
Despite its negative outlook, S&P said it considered Aster’s economic fundamentals strong, and its operations in the South West benefiting from high demand for its services.
It was calculated that Aster’s margins, including its joint venture partnerships, would average 31.6% until the end of March 2021, while social housing lettings would cover interest payments by 1.8x.
Chris Benn group finance director at Aster Group said:“We’re pleased our A+ rating has been affirmed again by S&P, which has recognised in its note our strong fundamentals and experienced management team.
“There is clearly currently prevailing uncertainty across the whole of the UK property sector.
"Against this background we operate a prudent, diversified business structure that generates revenue from multiple sources, including social and affordable rent, shared ownership and open market sale.
"Our strategy and model are regularly reviewed by our leadership team and overseen by our independent risk and compliance committee, which comprises four experienced non-executive members.
“Looking ahead, we believe we’re well-placed to continue to increase the number of homes we build year-on-year as we play our part in tackling the UK’s chronic housing crisis.”
