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SURVEYS & DATA
business | surveys & data
Care home deals ‘significantly ahead of pre-pandemic levels’, says Christie & Co
The number of care home deals is “significantly ahead of pre-pandemic levels” with completions up by 78% in 2022 compared with 2020, according to Christie & Co.
In its first ‘Care market review 2022’ report, the business property advisor said offers this year were at an average of 101% of asking price, reflecting strong investor appetite with competitive bidding commonplace.
Rob Kinsman, regional director, care at Christie & Co, said: “The last couple of years have presented the sector with huge operational challenges, but it is heartening to see that investor appetite has fully recovered. We have confidence that the entrepreneurial nature of the sector will ensure the transactional market continues to thrive despite the growing economic headwinds.”
New instruction levels rose by around 30% from 2020 to 2021 as operators capitalised on buoyant market conditions and strong values achieved.
The most active buyer type over the past five years has been independent operators with one or two homes, which accounted for 41% of sector deals.
The proportion of deals completed to corporate operators and investors stood at 22% in 2018. This dropped down to just 9% in 2021, when larger providers and investors paused their acquisitions due to the pandemic.
From 2018 to 2022, there has been a decline in first-time buyers, which accounted for 16% of transactions in 2018, dropping to only 7% in 2022. This is likely to be reflective of the increasing funding challenges for first-time buyers, and the regulatory burden of the Care Quality Commission. The decrease can also be attributed to an increase in quality, higher-value stock coming to the market.
Larger, regional multiple groups increased their market presence in 2021, accounting for 40% of transactions, up from 32% in 2020, showing they remained keen to expand their portfolios even though the sector was battling with the pandemic.
This year, corporate operators and investors have accounted for 33% of deals, with first-time buyers at 7%, down by 9% since 2018.
As a percentage of the overall total, deals brokered to regional multiple groups dropped in 2022.
The report says buyers were increasingly looking further afield due to a competitive marketplace and the increased use of technology in care homes which can allow for some operational work to be done remotely.
Almost half (48%) of deals this year were concluded by buyers who live 100 miles from their target business.
A large number of deals were concluded in and around urban centres, although transactions in rural and coastal areas were also up.
More than 1,500 care homes ceased trading between 2015 and 2020 with over 40% of these having Good ratings and being closed for reasons other >
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Rob Kinsman
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> than quality, including margins and cost pressures.
A record 31% of the care homes Christie & Co sold in 2021 were on a closed basis – 56% of these were sold for ongoing healthcare use, while 26% were sold for residential conversion.
The number of closed care homes sold dropped to just 13% this year, however, an increasing proportion (80%) of these closed homes were sold to care home providers.
Where the sale is for ongoing use, the larger homes are commonly sold to elderly care providers seeking to reposition the care home in the market. Smaller homes are often acquired by specialist care providers and supported living operators
When analysing local authority fee rate rises across the UK in the fiscal year 2022/23, Christie & Co found that fee increases fall short of inflationary cost pressures in the sector. There was a large disparity between fee increases throughout the UK, from 3.1% to 12.8%, with an average residential fee increase in England of 5.4%, and nursing fees rising by 6.8%. Christie & Co said it expects the burden on self-funding clients to rise.
More than half of respondents (52%) reported widespread use of agency staff with some saying they had been successful in sourcing recruits from new overseas markets.
Additionally, 43% of providers said occupancy had returned to pre-pandemic levels, with 57% reporting occupancy was still recovering.
Larger providers reported lower overall average occupancy levels than smaller regional operators which saw rates largely back to pre-pandemic levels. The majority reported good enquiry levels, suggesting a positive outlook for 2023.
Commercial finance firm Christie Finance said it had seen 8% fewer funded deals in the sector this year with operators looking to expand their portfolios or restructure existing debt.
The average loan size increased by 5.8%, suggesting that funding in the sector is evolving to provide more refinance to buy or expand.
First-time buyers making offers on care businesses fell from 48% in 2021 to 45% in 2022 due to the perceived difficulties in raising finance.
Christie & Co noted that this area of the market has been more challenging as the recognised lenders retrench to service existing operators with proven track records.
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CASE STUDIES
Christie & Co is currently engaged in the high-profile mandate to sell 111 freehold care homes for Four Seasons Health Care with the assets being offered for sale on a portfolio, sub-group, or individual basis. Completed deals include Anchor’s acquisition of the entire share capital of Halcyon Care Homes Topco comprising 11 care homes in the East Midlands and the South of England. Christie & Co also facilitated the acquisition of Cornwall Care by Sanctuary Care comprising 15 residential, nursing and dementia care homes, as well as assisted living support.
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