Wheatley, giant social landlord, retains S&P A+ rating

S&P Global Ratings has affirmed its A+ long-term issuer credit ratings on Wheatley Group — Scotland’s biggest social landlord. 

Wheatley owns and manages over 93,700 homes in 19 local authority areas in Scotland.

Wheatley Group CEO Steven Henderson said: “In these particularly challenging times, it is an outstanding achievement to be among an elite group of housing providers in the UK to hold an A+ (stable outlook) rating.

“It is further validation of our strong financial position and the vision set out in our five-year strategy, ‘Your Home, Your Community, Your Future’.

“It is also testament to the outstanding work carried out each and every day by over 3,000 staff across the west, east and south of Scotland who are Making Homes and Lives Better for customers in our communities.”

S&P Global Ratings said: “S&P Global Ratings today affirmed its ‘A+’ long-term issuer credit ratings on Wheatley Housing Group Ltd. (Wheatley) and core group entity Wheatley Homes Glasgow.

“We also affirmed our ‘A+’ issue rating on the £300 million bond issued by Wheatley Group Capital PLC, which we consider a core subsidiary of the group.

“In addition, we affirmed our ‘A’ long-term issuer credit rating on Lowther Homes (Lowther), Wheatley’s commercial arm that provides mid-market homes and property management services.

“The rating on Lowther is one notch lower than that on Wheatley, reflecting Lowther’s status as a highly strategic entity within the group.

“The outlooks on all group entities remain stable.”

S&P Global Ratings said Wheatley, the largest housing association in Scotland, has an asset base of close to 65,000 units, of which over 90% are for general needs rent.

It said Wheatley’s geographical footprint stretches from the central belt of Scotland between Glasgow and Edinburgh to the southwest of Scotland down to the English border.

“We believe that Wheatley’s relatively low general needs rent, which we estimate at close to 60% of Scotland’s average market rent, reflects strong affordability levels, supporting high demand for Wheatley’s properties,” said S&P Global Ratings.

“This is also evidenced by average vacancy rates of 1.2% over the past three years, which we estimate to be slightly below the sector average.

“In our view, Wheatley’s strategy remains prudent and it continues to focus on organic expansion, with all development planned to include only affordable and mid-market homes.

“Although not classified as social tenure in Scotland, mid-market homes are a form of subsidized housing with below-market rents.

“In response to challenging market conditions and cost pressures, management pulled back on some discretionary investments. We believe this should help partly absorb cost pressures while allowing the group to keep rents affordable for tenants …

“Wheatley’s development strategy remains aligned to its capabilities. After securing additional grants, the group is gradually expanding its development program to support the Scottish government’s target.

“We expect Wheatley will deliver about 2,400 new homes over our forecast horizon — from the financial year ending March 31, 2024 (financial 2024) to financial 2026 — which after netting off planned demolitions represents a modest 3% expansion of the asset base.

“On average, more than 50% of this program is uncommitted, providing additional flexibility to react to market conditions and limit capital expenditure (capex) when required.”

S&P Global Ratings said it expects sources of liquidity for Wheatley over the next 12 months to include:

  • Cash flow from operations of about £88 million
  • Current cash and liquid investments of close to £47 million
  • Fixed asset sales receipts of less than £1 million
  • Committed and undrawn facilities expiring beyond 12 months of about £260 million
  • Grant receipts of just under £100 million

It expects uses of liquidity over the same period to include:

  • Capex, including development spending on homes for sale, of just over £206 million
  • Interest and principal repayments of close to £83 million

“We think there is a high likelihood that the Scottish government would provide timely and sufficient extraordinary support to Wheatley, through the Scottish Housing Regulator, in the event of financial distress,” said S&P Global Ratings.

“We base our opinion on our assessment of the group’s very important role for the Scottish government and its public policy mandate, as well as its strong link with the Scottish government.

“This is demonstrated by the government’s track record of providing strong credit support to the sector in certain circumstances.

“We think the regulator views Wheatley as a systemically important registered social landlord. This is because financial distress at Wheatley could make it difficult for the regulator to fulfill its statutory objective of protecting tenants, since Wheatley remains a key delivery partner of the Scottish government’s affordable housing program.

“Wheatley aims to contribute about 11% of the government’s housing target of delivering 110,000 affordable homes by 2032.

“This further illustrates why Wheatley lies in the regulator’s high category of engagement, based on its large asset base, turnover, debt levels, and significance in its areas of operation.”