S&P revises Sanctuary’s outlook from negative to stable despite delays to Swan merger

The new stable outlook reflects the ratings agency’s expectation that Sanctuary will improve its financial metrics after making progress on its stock rationalisation programme.

S&P said it thought the association would sell a portfolio of student accommodation and other assets in 2025-26, while maintaining a moderate development programme and without needing to “substantially increase its existing stock maintenance”.

Sanctuary in announced October 2024 that it was considering selling more than 5,600 beds in 21 student properties across the UK.

At the time Ed Lunt, chief financial officer at Sanctuary, said: “The potential sale is being considered as a route to unlocking and recycling capital for new investment in our existing affordable homes and the communities we serve for the benefit of our customers.”

But S&P warned that Sanctuary’s “continued ambition to enlarge the group via business combinations with financially weaker entities” could prevent further improvements as recent mergers have tightened its financial headroom.

“Management achieves ambitious developing targets through sometimes complex business combinations,” it said, pointing to the Swan and Cosmopolitan Housing rescues as “arguably two of the most prominent rescues in the UK social housing sector”.

S&P also affirmed its A long-term issuer credit rating on Swan, revised its outlook to stable from negative and affirmed its A rating on the £235m senior secured bonds issued by Swan Housing Capital.

Sanctuary reported a total group revenue of more than £1bn in its 2023-24 annual results, but its surplus dropped just over £20m.

Looking ahead, S&P said the 120,000-home landlord’s liquidity is expected to remain strong, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) margins projected to recover to nearly 20% of turnover.

The rating could be lowered if Sanctuary failed to improve its financial indicators due to “substantially lower proceeds from asset sales, higher maintenance costs amid elevated inflation, or a more aggressive development strategy”.

Sanctuary could see a raised rating if it “substantially lowered its risk appetite” through a modest development programme or found its rents were increased much more quickly.

“The group needs to continuously invest in damp and mould prevention, fire safety and energy efficiency, as well as IT systems to maintain quality service standards,” S&P added.

Sanctuary has been contacted for a response.