The long-term issuer rating of Richmond-based housing association RHP has been lowered from ‘A’ to ‘A-‘ by S&P, citing the significant financial impact of energy efficiency upgrades on its existing housing stock.
Additionally, RHP’s £275 million bond issuer rating has been downgraded from ‘A+’ to ‘A’. The rating agency indicated that the association’s financial recovery is expected to be slower than initially anticipated due to higher projected costs over the next three years.
S&P explained that the delay is mainly attributed to increased investments in existing assets, necessitated by the cyclical replacement of components and the need to upgrade the housing portfolio to meet EPC C standards by 2030.
The agency noted that these investments, although partially funded by grants from the Social Housing Decarbonisation Fund, are likely to affect RHP’s performance.
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Last year, RHP launched a five-year program to upgrade 1,645 homes to Energy Performance Certificate (EPC) C standards. However, S&P predicts that RHP’s debt metrics will be weaker than previously projected due to lower non-sales earnings and higher debt-funded stock expansion. The agency projects that RHP’s adjusted EBITDA margins will remain 20% below turnover on average until March 31, 2027.
Despite these challenges, S&P expects RHP’s rent revenue growth to outpace cost increases starting from 2024/25, which should allow margins to recover. The agency also highlighted RHP’s focus on ‘low-risk’ traditional housing activities, with less than 10% of total revenue coming from sales, and no plans to expand into open-market sales or shared ownership.
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S&P added, “RHP’s access to external liquidity is satisfactory, and the group has a good record of accessing debt capital markets.” An ‘A’ rating indicates that an organization has a strong capacity to meet financial commitments but is somewhat susceptible to economic conditions and changes in circumstances.
RHP’s five-year stock improvement program includes the delivery of 1,250 kitchens, 400 bathrooms, 332 new roofs, 432 replacement windows, and energy efficiency upgrades for 1,645 homes through insulation, window replacements, heating upgrades, and roof improvements. The provider’s energy efficiency program involves £15 million of improvements over the next five years.
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