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Bond of the Week: 10 October 2017
Bond of the Week : 10 October 2017
Hightown Housing Association, issuer of an existing 4.4% 2025 retail bond, has returned, bowl in hand, and asked for MORE. Do they deserve it? Here are the terms.
Hightown is a housing association that has been able to take on charitable status (because it is a substantial provider of “care”). This gives it some tax advantages and incidentally means they avoid “right to buy” (understandably they are reluctant to alienate their assets, particularly at a discount to market value). They are regulated both by the HCA and the Care Quality Commission. This bond, like the last one, is issued under the Retail Charity Bond umbrella. You can find what I previously wrote here.
The new bond is to finance further expansion of Hightown’s housing stock. The business is substantially the same as when I last wrote, albeit it is somewhat larger. They currently manage and own 5,300 residential units, an increase of 20% since their last bond in 2015. The proceeds of this bond will allow them to pursue the growth plan of adding 350 units per annum. They operate, as before, in Hertfordshire, Bedfordshire and Buckinghamshire, all prosperous areas of the country. From a credit perspective this is positive for two reasons. It supports housing valuations (their asset base) and because housing is expensive in these counties it increases demand for subsidised rents and therefore the services of Hightown.
Source of Revenue 2017 2014
General Needs 38.8% 36.9%
Supported Housing 31.1% 26.6%
Care and Nursing 7.8% 8.2%
Others 2.3% 2.6%
As they build and develop (additions to the stock only come via new builds) so the proportion of modern homes increases. At present 68% are post 1994 builds and only 5% pre 1954. The newer the home the less the maintenance and running costs. Also, of course, the newer the less charming. I see from various photos supplied that Hightown is doing their bit to help plough over what remains of the English countryside in the South East and replace it with square boxes with small square double glazed windows in Scandinavian municipal car park style. But this site is about money not architecture; let’s move on.
A couple of other points on their housing stock are worth mentioning. 81% of their units have two or fewer bedrooms, so limiting their exposure to the Bedroom tax and 70% are low rise flats which improves efficiency of management and maintenance costs. The management also said they only had one building with a cladding problem and that was a new build. Therefore although it will cost money (unless, as they suggested, the government provides – get that bowl out again) no one needs to be evacuated.
Turnover ex Sales 53mil 39.5mil +34.5%
Oliver Butt is a Partner in City and Continental LLP, a leading independent broker in fixed income. The author and or the LLP may hold a position in or trade in any of the securities mentioned above.
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