Ratings agency says provider’s 2025 financial performance ’materially below’ forecast
Peabody, one of the largest social landlords in England, has had its credit rating lowered by S&P Global Ratings after it showed a “weaker” fiscal year than anticipated.
The ratings agency reduced the G15 landlord’s credit rating from A- to BBB+.
S&P said Peabody faced higher investment in existing homes and delays in asset disposals, thereby “postponing the recovery of its financial performance that we previously anticipated”.
The ratings agency said in the financial year to 2025 (which ended on 31st March), Peabody’s adjusted non-sales earnings before interest, taxes, depreciation and amortization (EBITDA) interest coverage was 0.3x and adjusted EBITDA margin at about 7%.
S&P said Peabody saw a decline in adjusted EBITDA to less than £80m in the fiscal year to March 2025, which it said was “materially below our previous forecast”.
It also said the group’s development sales activities, as well as non-core and void property disposals, had been slower than expected.
Last week the London landlord revealed in an unaudited trading update that its turnover has broken the £1bn barrier, increasing by 4.7% from £989m to £1.04bn, including a £31m increase in income from social housing lettings.
Peabody reported EBITDA MRI interest cover of 44% last year, meaning it was a long way short of being able to cover interest costs from its earnings. No figure was provided for 2024/25 in the latest update.
S&P said it is adjusting its rating but Peabody’s “outlook is stable, reflecting our anticipation of a gradual recovery in the next two to three years.”
The ratings agency S&P also lowered the credit rating of Town & Country Housing Group to BBB+ from A-, stating that it considers it to be a “core subsidiary” of Peabody Trust.
>>See also: Peabody starts fall by nearly three-quarters as it takes ‘careful’ approach to development
It also lowered its issue ratings to BBB+ on a £1bn senior secured and unsecured medium-term note program issued by Peabody Trust, as well as the senior secured debt issued by Peabody Trust, TCHG Capital PLC, and Peabody Capital No 2 PLC.
The ratings agency warned it could lower the rating on Peabody Trust further “if the management loosens control over investments in new or existing homes, or if unfavorable market conditions hinder its plans to sell properties”.
On the upside, it said it could raise the rating on Peabody “if the management successfully copes with the risks associated with investment in existing homes, resulting in a sustained material improvement of performance with adjusted nonsales EBITDA interest coverage recovering toward 1x”.
Peabody Trust is one of the largest housing associations in England, with more than 108,000 units across London and Southeast England.
Phil Day, chief financial officer at Peabody, said: “The plans we have in place, including a new Group Strategy for 2025-2028, are not impacted by this change. As noted by S&P our level of interest cover is a challenge in the short-term, but our recently approved Business Plan sees this recover over the next three years.
“We continue to be an A grade investment proposition on average across our three credit ratings. We made a trading surplus last year, supporting financial resilience and enabling continuing investment in looking after residents’ homes well. Safety and quality are our top priorities for investment. We’re also encouraged by the recent government spending review which should have a positive impact in the medium term.
He added: “We have good, solid financial foundations and the board has assurance and confidence in our strategy. Looking ahead, we’ll continue to take a prudent, careful approach to investment in new homes whilst continuing to invest in existing homes and developing more locally focused, place-based services for residents.”
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