June 27, 2019 Finance

Christie & Co’s half year review of the care market: activity, consolidation and strong investor confidence in needs-based sector

Specialist business property adviser, Christie & Co provides an overview of the care market in the first half of 2019, reflecting on developments in the market, emerging trends and challenges facing the sector, following the publication of Christie & Co’s Business Outlook 2019 report in January this year.
Market developments
As care operators have continued to focus on improving quality and operational effectiveness, which Christie & Co highlighted in its Business Outlook report, the development of new, purpose built care facilities has remained a key focus into this year. Activity has also remained high, with investor demand seen from across the industry with private equity, REITs, regional operators and corporate groups looking to consolidate, along with yields continuing to compress.
In terms of key corporate headlines, at the end of April, it was announced that administrators had been appointed in respect of Four Seasons Health Care, the UK’s second largest operator. The move seeks to decouple the operational business from the burden of debt it faces and, as such, the administration relates to the financial holding companies as opposed to the operational business which continues to trade as normal. A decision has however been taken to place the operational business on the market and, once the process concludes, Christie & Co expects that the business will move forward in a positive way with a new ownership structure in place.
Following on shortly after the announcement of the FSHC administration and sales process was the successful conclusion of Impact Healthcare REIT’s fund raise. After setting out to raise £25 million in equity, the process closed at c.£100 million, nearly four times oversubscribed. Christie & Co notes that this outcome further reinforces the strength of the market and investor demand, particularly given the timing relative to the FSHC announcement.
While some businesses face financial challenges with local authority fee rates and staff recruitment, as outlined in Christie & Co’s Business Outlook 2019 report, market sentiment remains positive, as the needs-based market shows growth and resilience to macro events. Christie & Co also notes that as the market enters a new fiscal year, with local authority fee rates being reviewed, there is potential for financial pressures to ease for operators in some areas.
Industry trends
As Christie & Co anticipated in its Business Outlook report, 2019 has seen a continuation of the trend of consolidation in the market, with recent announcements including Impact’s purchase of four sites and Swanton bolstering its adult supported living and specialist childcare offering with acquisitions in the first half of this year.
The Housing with Care market has also been growing and Christie & Co expects to see an increasing trend of dynamic housing with care models coming to the market in the UK, which will be built and operated with a greater understanding of the need for care provision and lifestyle amenities within older persons accommodation. This part of the market is continually evolving as new developments are completed and new entrants enter the market.
Government Green Paper
The Government’s highly anticipated Green Paper, originally announced in 2017, on funding has still yet to emerge, however with Theresa May’s recent resignation announcement, it is difficult to anticipate what to expect in the second half of 2019.
Brexit
As a needs-based sector, activity and demand in care remains largely unimpeded by Brexit developments directly, though Christie & Co notes there is a direct impact on staff recruitment, particularly with the current nurse shortage the industry is facing.
For the past four years, Christie & Co has produced its report on adult social care which showcases benchmarking data gathered from extensive surveys of operators and local authorities. With the review now commencing for 2019, further insight into the challenges and opportunities facing the sector will be provided this year.
Richard Lunn, Managing Director – Care at Christie & Co comments, “The first half of 2019 has been a busy period with strong demand being shown across the market spectrum by a wide range of participants, albeit some larger processes have been delayed by Brexit uncertainty.”
Michael Hodges, Managing Director – Healthcare Consultancy at Christie & Co comments, “Healthcare remains a very attractive sector to invest in for a wide variety of funds and these fundamentals are unlikely to change given the very strong underlying demographic trends. All the ingredients are in place for a strong second half although there remains a risk that larger processes may continue to stall until there is clarity over the Brexit outcome.”
Jeremy Cashmore, Head of Valuation – Care at Christie & Co comments, “The drive towards quality, in terms of physical environment and sustainability of the business, has been magnified by the slight uncertainty in the wider economy. The upshot has been positive movement in value for strong businesses and this is likely to continue for the remainder of the year.”

For further information: www.christie.com

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