Is now the right time to buy a Care Home?

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Laing & Buisson’s publication ‘Care of Older People’ (27th edition) contains facts and figures which reveal some of the opportunities (and risks) in buying or investing in care homes in the UK.

Residential care capacity in September 2014 stood at an estimated 487,000 places, with the value of this market estimated at £15.9 billion. Of this, the private sector accounted for £12.1 billion (76%), the voluntary (not for profit) sector £2.2 billion (14%) and the public sector £1.6 billion (10%). The number of beds provided by the private sector increased by 3.4%, with the voluntary and local authority sectors continuing to contract.

Laing & Buisson reported that UK demand is projected to increase from 433,000 occupied places in 2014 to about 460,000 in 2020, of which 446,000 will be in the private sector.

The share of the private sector held by operators with three or more homes increased to 60% in 2014. This was mainly as a result of expansion by operators with less than ten homes. Small businesses (one or two homes) hold the remaining 40%, which has been in slow decline for three decades. Typically they operate smaller scale, converted homes, run on traditional owner/manager lines, often by a husband and wife team running a single care home.

Despite constraints on bank lending, capital has continued to be available from a handful of banks for well-structured deals, as evidenced by the continuing expansion of care home capacity led by small and medium-sized rather than large companies. Private equity remains an additional source of capital for medium-sized companies, for those willing to sacrifice a large share of equity, despite the 2011 Southern Cross Healthcare debacle.

At Ashtons we are increasingly instructed by operators with three to ten homes, looking to expand their portfolios by acquiring new homes or developing the sites of existing homes. Sometimes the target properties are failing care homes, being disposed of at a discounted price by the larger providers, with low occupancy rates, poor CQC ratings and a frequent turnover of managers and care staff. By identifying opportunities via agents such as Christies, and obtaining funding from lenders such as NatWest Bank (which has built a substantial share of the regional market) those operators which are able to turn such homes around can benefit from the market conditions described above.

While the larger operators continue to dominate the market (three operators – Barchester, Four Seasons and HC-One Limited – have portfolios in excess of 10,000 beds) their growth has been relatively muted and the real opportunities would appear to be for operators much further down the scale.


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