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Places for People handed credit rating upgrade over shift from market sale to social housing
Places for People has secured a ratings upgrade off the back of plans to cut its exposure to market sales and up its focus on social housing.
The 198,000-home landlord has been handed an issuer rating of A3 by Moody’s as a result of its shift in strategy, which the agency said will “result in a reduction in riskier and less profitable non-core activities”. It also retained a ‘stable’ outlook.
The A rating means that Places for People is considered a “low” credit risk, compared to a “moderate” risk under its previous Baa1 rating.
Places for People, which reported a 27% drop in surplus in its last full year, had forecast its market sales exposure to peak at 38%, according to Moody’s. However the group’s current business plan says this is now expected to reach a maximum of 28%, the agency revealed.
It comes amid a raft of housing associations being hit by the Brexit-induced faltering property market, with many scaling back their development plans.
Places for People, which owns 66,000 affordable rented homes, built 1,876 new units in its last financial year, 851 of which were affordable.
The group plans to increase its percentage of turnover from social housing lettings to 44% over the next three years, Moody’s noted. The group’s business plan last year forecast that this proportion would fall to 33%.
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The agency said the upgrade also reflects Places for People’s move to improve profitability. The group’s operating margin hit 24% in its last financial year and is expected to reach 27% by 2023, Moody’s said.
Places for People has been held back by its “non-core” activities leading to “credit challenges”, Moody’s said. “The group’s operating margin on social housing lettings stood at a very strong 47% in fiscal 2019 but the margin on its other activities was low at 6%,” the agency said.
Moody’s also noted the landlord’s strong liquidity as it has been “proactive in responding to elevated economic and political uncertainty”, the agency said.
However it flagged Places for People’s “relatively high” debt, which is expected to hit £3.3bn by 2022. Gearing will be around 60%, but Moody’s noted that the average among other large housing associations is 49%.
The agency added that the stable outlook reflects its view that “strategic change to focus more on its social housing activities, a strengthening in profitability and high liquidity are balanced by the group’s opportunistic approach and high gearing relative to peers”.
