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Care homes to remain under pressure says Christie + Co

Richard Lunn

Christie + Co, the transactional and

professional services company has warned that 2013 will be a challenging one for care homes after a tough 2012.

However last year saw the transactional marketplace have a genuine impetus as major providers continued to restructure their estates. In a lively marketplace, values remained relatively stable with average prices for care homes sold by Christie + Co declining by a marginal 0.7 per cent. Yet this does not mask what remain

diffi cult times for operators, suggests Richard Lunn, Director and Head of Healthcare.

“Many of the obstacles faced by care providers even prior to the recession remain in play today,” said Mr Lunn. “Operationally, homes are being challenged by local authority commissioning and fee practices,

increasing regulation and red tape. While the latter is welcome news for service users and their families it hasn’t resulted in a return on fees for providers.” An increasingly important aspect of major operators’ development has been the focus on new-build and turn- of-key developments. Through 2012, Christie + Co brokered a number of deals on behalf of developers such as LNT Construction and AMA in Scotland to providers such as Sanctuary Group, MMCG and Care UK.

The operator race for quality led to a surfeit of homes at the mid-to-lower end. As a result, transactional activity surpassed that of 2011 as the appetite from investors remained broadly undimmed. Richard Lunn added: “Sales were buoyed by indications of the return to the sector of banks and other lenders. Whilst these can only be labelled as cautious fi rst steps, they are movements in the right direction.” Looking towards 2013, Mr Lunn added a note of caution: “The sector remains under pressure from familiar foes. Dependency levels are generally

rising, suitable staff remain in short supply, cost pressures are increasing and margins are being squeezed. “Moreover, in two announcements late in 2012, the Government signalled its intention to force more regulation on the sector. The Secretary of State for Health announced a potential new ratings system, similar to that used by Ofsted and the care minister Norman Lamb put forward proposals for legislation to force care operators into greater fi nancial transparency, to avoid – in the minister’s words – ‘another Southern Cross’. “Whether this is genuine concern or an attempt to curry favour with the declining Coalition support, we shall have to wait and see.” Mr Lunn concludes: “Nevertheless, with a new-build pipeline in the sector and ongoing interest from the private equity industry, optimism abounds for a high quality sector in 2013 and beyond.”

Chart shows care home price movements

“This is partly due to squeezed family budgets, but also a reduction in government spending with local authority budgets for social care reduced by more than £600 million or eight per cent, between 2011 and 2012.”

Julie Palmer

Begbies Traynor say care home fi nances are a ‘ticking time bomb’

Begbies Traynor, the specialist professional services and recovery practice consultancy, has listed care homes as one of the fi ve sectors most at risk of facing fi nancial distress in 2013. Julie Palmer, a partner at Begbies

Traynor, also named aviation, farming, local authorities and NHS trusts as

facing problems.

Of care homes, she said: “Our Red Flag Alert system shows that 29 per cent of care home fi rms in the UK are facing signifi cant or critical fi nancial problems. The sector has been hard hit by economic malaise and austerity measures and despite the number of people over 65 in the UK exceeding those under 16, there has been an overall decline in occupancy in care homes.

She added: “The sector’s ability to cope with the current environment is hindered by a lack of management teams who are sophisticated enough to manage costs effi ciently and drive new occupancy, combined with heavy indebtedness across much of the sector based on high loans-to-value which no longer refl ect the current value of the properties and restrict management’s ability to refi nance. “We believe the sector is a ticking time bomb, with fi rms offering non- specialist care and operating from smaller occupancy homes, in particular, facing severe pressures on their fi nances in 2013.”

March/April 2013 | Care Home Management 7