Board

Market predictions

03_ Distressed sales will again dominate and provoke demand from buyers prepared to invest in assets in a market fuelled by the requirement for quality 04_ There may be some investment market hesitancy leading up to the refinancing of Four Seasons Health Care

01_ Major operators will rationalise their estates as they improve quality through turnkey acquisitions or organic growth 02_ Fee profile and bank sentiment will see more older stock come to the market at affordable prices as vendor aspirations on price adjust to meet those of buyers

2012

2011 will go down as a year when the care sector was very much a tale of two markets. The first saw corporate operators in a wait- and-see limbo while the Southern Cross scenario played out. The second market had a regional backdrop, where transactional activity was dominated by private sellers, older stock and administrations. Southern Cross was undoubtedly the story of the year – certainly the one that most exercised the minds of government, regulators and the media. The uncertainty of all involved and those that observed the situation couldn’t be denied, yet what emerged, despite the almost daily adverse headlines, was a strong sector coming together to resolve the issue in the best interests of service users. What could have been a disaster instead saw 31,000 residents transferred to new operators in a consensual and solvent manner, without any detriment or hindrance to the ongoing delivery, or quality, of their care. The process saw the leasehold interest in over 750 care homes reassigned by landlords to operators including a new company formed by Dr Chai Patel (HC-One) which is to operate 250 assets. Meanwhile, Four Seasons Health Care expanded to become the UK’s biggest care provider when it took over 130 homes. Christie + Co acted on the assignment of over 60 homes on behalf of landlords to operators

Negative sentiment hits sector The ongoing fee debate with local authorities, lower occupancy levels and a hitherto unsurpassed degree of media antipathy towards the care sector – caused not just by the Southern Cross situation but also by BBC Panorama’s investigation into allegations of mistreatment of service users in the Winterbourne View care centre – all conspired against a care sector already hard hit by the economic climate. These conditions have influenced how the care sector is perceived by the public, investors, and the Care Quality Commission (CQC). While the CQC’s ratings system has now gone, care providers can expect a more aggressive regime of inspections in the future – but only if the regulator is able to fulfil both this and its additional duty to the NHS. Key to the future A significant factor in 2011 was the growing trend amongst major operators to seek turnkey developments. Christie + Co saw a great deal of activity on this front during the course of the year, acting on behalf of leading developer LNT Construction to sell sites in Derby (to MHA), Nottingham (to regional operator Bank House Care) and in Sheffield ( to Sanctuary Group).

including Care UK, MHA, Maria Mallaband Care Group and Four Seasons. Christie + Co was also instructed to sell the only five freehold premises held by Southern Cross together with its domiciliary care business. Corporate transactions at a premium The stalling of transactions and uncertainty in the care market caused by the ongoing Southern Cross scenario came at a poor time for a sector which had seen transactional activity increase significantly and had seen values increase by 0.4 per cent – the first increase in three years. The year started brightly with the sale of Priory Group by RBS to Advent International in a deal valuing the group at £925 million – reportedly a nine-and-a-quarter multiple. Priory’s later acquisition of the Advent-owned specialist care provider Craegmoor was the only other significant corporate deal to take place prior to the Southern Cross lease-reassignments. On the private vendor side, 2011 also began slowly from a transactional perspective, but picked up significantly in the second-half of the year. This was largely the effect of estate rationalisation by the major operators and a growing amount of distress. Of the care deals completed by Christie + Co during 2011, over a third had a distressed background. This is something we can expect a lot more of in the year ahead as the economic climate shows little sign of improving.

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