The credit rating agency says that Futures’ spend on stock will keep its EBITDA margins below 20% over the next two years
Standard & Poor’s has downgraded Futures Housing’s long-term issuer credit rating from A+ to A due to its ‘sizeable’ investments in existing homes.
The outlook on the ‘A’ long-term rating is stable, which reflects S&P’s view that Futures’ management team will manage costs to limit further pressure from high investments in existing stock.
The ratings agency has forecast that Futures Housing Group (FHG) investment in existing homes will lead to Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margins remaining below 20% until the 2026/27 financial year.
In 2023/24, Futures invested £16.7m in its existing homes. The housing association owns 10,700 homes in the East Midlands.
The credit rating agency said “we expect an overall weakening across FHG’s financial metrics because of the higher-than-anticipated costs and overspend on repairs”.
However, in its latest report on FHG, published on 11 October, it stated: “That said, we expect management’s solid strategic planning and prudent risk management, alongside very strong liquidity, will support a gradual recovery, though not to levels previously forecast”.
In its evaluation, S&P indicated that it could downgrade FHG’s rating if management pursues a more aggressive strategy that results in significantly weaker financial metrics than anticipated. This includes a sustained interest cover ratio falling below 1.0x.
S&P said it could raise FHG’s rating if it contains costs, such that S&P Global Ratings-adjusted EBITDA margins exceed and remain above 20%, with limited debt buildup and liquidity sustained at very strong levels.
The ratings agency said that it continues to view FHG’s management “as a key rating strength”, adding that it is managing risks well and that S&P anticipates it will proactively secure grant opportunities to invest in new and existing homes.
The report stated that as of 31 March 2024, 60% of FHG’s stock was at or above the Energy Performance Certificate C level.
S&P said it thinks FHG is on track to achieve its 2030 decarbonisation targets, but that spending on this and other cost increases will affect its financial performance.
S&P also downgraded the long-term issue rating on the £270 million bond issued in February 2019 by Futures Treasury PLC, the group’s funding vehicle established to issue bonds and lend the proceeds to Futures Housing Group, from A+ to A.
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Ian Skipp, group finance and resources director at Futures Housing said the change to its credit rating was “not unexpected” and said “we don’t believe it’s cause for concern.
“The rising costs of maintaining homes and meeting ever more stringent standards in the social housing sector are having an impact on all housing associations and Futures is not immune.
“At the same time we have strategically decided to prioritise investment in our customers’ homes with ongoing programmes around new homes, improved sustainability and energy saving measures and enhanced repairs and upgrade work. We are also doing more to support communities and struggling households. Our liquidity position remains strong and we’re pleased to see that reflected in S&P’s comments in their grading statement.”
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