S&P downgrades Incommunities from A to A-

“We think pursuing it would stretch the group’s financial and operational capacity and would weaken the financial metrics against our previous forecast,” S&P said in its credit ratings report.

“We understand that the group is catching up on the fire remediation works associated with its high-rise buildings while increasing other repair costs to meet its stock standards.

“We also consider that additional costs may be identified as the group progresses with collecting further data on its housing stock. We expect only a modest recovery as costs stabilise when the group implements its plan to improve stock quality.”

S&P said Incommunities’ ramp-up in investment in existing homes has resulted in weaker adjusted EBITDA margins compared with peers.

“Although potential grant funding and cost savings could partly mitigate the pressure, we expect the group to face significant fire and building safety remediation costs, while also spending to catch up with its peers on energy efficiency,” the agency said.

S&P added that Incommunities is expanding its development plan of new housing stock, which will be largely debt funded and would likely further strain its debt profile.

S&P said: “A combination of debt build-up and weaker adjusted non-sales EBITDA will constrain the recovery of debt metrics compared with our previous expectations. We therefore anticipate the group’s adjusted non-sales EBITDA interest coverage will modestly improve to 1.0x by March 31, 2027, when fiscal year 2027 ends.”

S&P added that it considers the group’s liquidity position as “very strong”, underpinned by its relatively large volume of undrawn committed facilities.

John Wright, executive director of finance at Incommunities, said: “The latest rating reflects the wider financial challenges affecting the whole sector, but it also shows the importance we have placed on investing in our properties to improve the quality and safety of our homes.

“We believe our investment decisions mean we’ve got the right balance to ensure that we continue to meet the needs of our customers.”

In September last year, the Regulator of Social Housing upgraded the Bradford-based landlord from G2 to the top governance grade of G1, after it made “necessary improvements”. 

Sanctuary

S&P has affirmed its A credit rating on Sanctuary and upgraded the outlook from negative to stable for the housing association, which manages around 125,000 homes across England and Scotland.

It said the stable outlook reflects S&P’s expectations that Sanctuary will improve its financial metrics through asset sales and tighter cost controls amid continued ambition to enlarge the group via business combinations with financially weaker entities.

This is despite Sanctuary’s adjusted-EBITDA margins temporarily weakening in 2022-23 and 2023-24 because during this period the landlord started absorbing Swan Housing Association and increasing its investment in existing stock.

S&P said in its credit rating report: “The outlook revision on Sanctuary reflects our opinion that the group will successfully sell a portfolio of student accommodation and some other assets in fiscal 2026. We anticipate Sanctuary will use proceeds from the asset divestiture to reduce its debt burden.

“At the same time, we anticipate Sanctuary will not need to substantially increase its existing stock maintenance, and its development programme will remain moderate. As a result, we project a gradual improvement in the group’s financial performance and debt burden over financial years 2025-2027.”

S&P added that it believes Sanctuary will “maintain solid financial indicators” following the full integration of Swan and Johnnie Johnson Housing into the group, despite pursuing opportunities for new business combinations.

Sanctuary completed the rescue merger of Swan as a subsidiary in February 2023 and then took on 5,000-home JJH as a subsidiary in March last year.

In January, Sanctuary retained the highest G1 grading for governance in its first assessment since completing these two mergers.