London homelessness specialist handed outlook upgrade by S&P

S&P said that Local Space’s refinancing of upcoming maturities via private placements and its modest acquisition programme will result in “very strong liquidity and stable debt levels” over the next two years.

In its report, S&P said it also expects that Local Space “will maintain favourable margins amid cost increases and curtail weakening beyond expectations”.

The credit rating agency said it predicted that Local Space’s interest cover will weaken, with a higher cost of capital and slightly lower S&P Global Ratings-adjusted EBITDA.

However, it said it expects the landlord’s management to mitigate risk by adopting a greater proportion of fixed-rate debt.

S&P said it believes the group’s arrangement with local authorities and unique operating model will continue to “support strong financial performance relative to peers”.

“The outlook revision reflects our view that Local Space will uphold its improved liquidity position, underpinned by a strengthening in the group’s treasury planning and reduced acquisition programme that will limit capital needs,” the credit ratings agency said in its report.

S&P said it believes Local Space will use flexibility in its capital programme to invest in existing assets.

It said: “We expect management to remain focused on the customer experience and increase control of its asset base through incremental expansion of its initiative to take back direct tenancy management. We project the group will also grow through its new leasing programme with the London Borough of Newham.

“We believe financial performance will modestly weaken because of Local Space’s expansion into the lower-margin lease programme and inflation to repairs costs. Despite expectations of contraction, we still project the group’s unique long-term arrangements with local authorities will sustain adjusted EBITDA margins considerably higher than peers’.”

Josie Parsons, chief executive at Local Space, said the housing association has achieved an AA- credit rating from S&P for the eighth year, along with a stable outlook, because of its “very strong liquidity and stable debt levels, which given the ongoing challenging economic environment is a real achievement”.

“Crucially it means we’re able to continue to deliver high-quality settled accommodation and help those facing homelessness in east London, working with our partner organisations,” she said.

In its last reported full year to the end of March 2023, Local Space saw its post-tax surplus fall around a fifth to £6.5m, on turnover of £39.6m.

In January, the regulator upgraded Local Space to V1 for financial viability. It had been among 19 landlords downgraded for viability in late 2022 due to the wider economic environment.