A Guide to Care Home Investments
Contents
A Guide to Care Home Investments
1. Introduction 2. An Ageing Population 3. The Current UK Care Market 4. The UK Care market industry performance 5. Maximising investment returns from the UK healthcare market 5.1 Considerations 5.2 Opportunities & Risks of the UK Healthcare Market 6. Future proof care home investments [infographic] 7. Investor opportunities 7.1 Oakesway Care Home 7.2 Finchley Court Care Home 7.3 Clifton Moor Care Home 7.4 Walsden Care Village
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Introduction
A Guide to Care Home Investments
Care Home investments can offer an alternative buy-to-let property opportunity that can be highly profitable – offering annual returns of 10% or more, as well as the opportunity for capital growth. Driven by the rising life expectancy of people within the UK, investments in care home properties have become increasingly popular as an alternative way of generating a passive income. Care Home investments provide an investment opportunity in an ethical sector that now allow individuals to capitalise on the strength of the healthcare property industry which has traditionally only been available to institutionalised investors.
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An Ageing Population The UK has an ageing population. The proportion of people aged over 65 has increased over the past 30 years – a trend that is predicted to continue. This trend will place added pressure on the UK’s health care, social care, housing and the economy. According to the Office for National Statistics (ONS), the UK is at its oldest ever. In mid-2014, there were some 11.4 million people living in the UK aged 65 and over – making up 17.7% of the population, up from 11.1 million the previous year. The ONS predict a quarter of the population will be over the age of 65 by 2044 . Furthermore, the number of people aged 75 and over has increased by 89% over the period, now making up 8% of the population.
Proportion of people at older ages, UK population mid-1974 onwards.
A Guide to Care Home Investments
A rapidly ageing society means an increased number of older people, living longer – often with chronic, long-term health care requirements. As a result, it is predicted there will be an 80% increase in demand for health and social care for people with dementia in the years 2010 – 2030 . According to the House of Lords “Ready for Ageing?” report, the UK is currently ‘woefully underprepared’ for ageing and there’s significant implications that will result without urgent action. The need for this transformation in the UK is given additional urgency by a challenging financial backdrop. The King’s Fund released a report in 2014 that states “The NHS and social care have reached a critical point. The service faces enormous challenges over the next 18 months…” The report goes on to state “There is considerable agreement about the vision for a more integrated service that provides better care in community settings, and that this vision can deliver both lower costs and better outcomes. However, these ‘transformational’ changes are not costless to implement.”
Source: Office for National Statistics, National Records of Scotland, Northern Ireland Statistics and Research Agency
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The Current UK Care Market In July 2015, there were 5,627 registered nursing homes in the UK equipped to dementia standards, and 12,311 residential homes. To appropriately support people, the housing market needs to change in order to deliver the specialist housing and care required by the elderly.
A Guide to Care Home Investments
If you are planning to increase your exposure to specialist property, which sector(s) will you be targeting?
According to Age UK, more than a third of people over the age of 65 think Britain has become a worse place to live in the last year . Between 2005/6 and 2013/14 there was an 18% reduction in spend on older people’s social care – whilst the number of people aged over the age of 65 significantly increased. The healthcare industry remains one of the fastest growing markets across the globe and with a wealth of new property investment opportunities available, the sector offers unprecedented growth potential. The returns profile of this asset class is also capturing the attention of the wider investment community. Knight Frank undertook a specialist property survey in January 2015 of 69 leading investors, developers and lenders. The survey aimed to understand the attitudes towards specialist investments. When asked “If you are planning to increase your exposure to specialist property, which sectors(s) will you be targeting?” A substantial 70% of respondents stated they would look to target the UK healthcare and student markets.
Source: Knight Frank, Specialist Property The Core Markets, 2015
The survey indicated an increasing appetite for specialist property investors, of which, Knight Frank predict that the UK care home sector will likely be the strongest performing segment due to structural undersupply and increasing demand. The availability of good quality care homes is still limited, creating extraordinary levels of demand for profitable facilities. In response to this demand, UK healthcare property is now widely regarded as a mainstream asset class with many individual investors turning to this income stream to diversify their portfolio. The strong, index-linked income, provides both short and long-term benefits, and as a result is attracting growing numbers of private investors to purchase within this sector.
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The UK Care market industry performance With £4.5bn worth of deals occurring in the healthcare market in 2014 (Source: CBRE UK Healthcare Marketview, Q1 2015), the UK healthcare market continues to attract investors due to long rental leases, and RPI index-linked annual rental increases. Subject to asset quality, business attributes and location, there is increasing evidence that banks and lending institutions are prepared to invest and support operators across the healthcare spectrum, due to the strong, supporting demographic argument. According to the IPD’s Healthcare Index, UK healthcare property outperforms all other UK commercial property with total UK returns across all UK healthcare property increasing over the last 12 months from 5.6% at the end of 2013, to 9.0% at the end of 2014. Compared with only 1.5% p.a. for all UK property, the care industry is a significantly more profitable and secure option.
A Guide to Care Home Investments
The secondary healthcare sector and specifically care homes is a rapidly growing part of the healthcare market. The increasing demand for suitable elderly care is a key driver. Currently, up to 80% of the UK’s care home stock is below ‘institutional’ quality – providing a clear case for investment in future-proofed care facilities. The new healthcare investor sees major opportunities in acquiring real estate that takes advantage of the long-term demographic movement, combined with the medium-term benefits of real estate investments and the short term availability of high-quality stock with relatively low demand.
Furthermore, the market has demonstrated robust returns from a stable marketplace since the index was launched in 2007, demonstrating an impressive risk-reward profile in comparison to other UK property sectors. John Hearle, Chairman and Head of Healthcare, Aitchison Raffety states,
“Healthcare property is a solid, long-term, secure investment showing steady growth and a lack of volatility. Some people may see the sector as ‘comfortably boring’ but certainly for Primary Healthcare, that is what the investor wants.”
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Maximising investment returns from the UK healthcare market
A Guide to Care Home Investments
According to Knight Frank, healthcare properties are predicted to be the best performing asset in the healthcare sector and offer substantial returns for investors, however it’s important to consider all the risks and rewards involved to ensure investors maximise their returns.
5.1 Considerations 1. Specialist management, with a commitment to excellence
3. Solid business models & financial positions
As the operational success of a care home property relies heavily on the reputation and management of the property, it is important to work with properties committed to excellence and a first-rate attitude to providing premium care and superior management. Managers and staff should all be welltrained and informed of all industry guidelines.
Ensuring a sound business model that consistently brings profits into the business is of course the foundations of any successful investment.
2. High quality facilities that are patient driven and offer significant treatment advances
4. Competitive differentiators Professional associations and guidelines are in place to ensure the duty of care is maintained in the UK. It is important to assess the quality service provision against industry guidelines from the CQC (Care Quality Commission).
Progressive technology and forward-thinking facilities will ensure both residents and care staff alike benefit. Unlike traditional or refurbished care homes, futureproof facilities will ensure the longevity of your investment and the success of the individual care property. Aspects such as hygiene, catering and activities offered should all be considered when evaluating the quality of the property.
“The future for healthcare real estate investments is looking more positive than at any time in the last five years” Source: Healthcare Real Estate - ‘A New Era for Investors’
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Maximising investment returns from the UK healthcare market
A Guide to Care Home Investments
5.2 Opportunities
Risks
1. Under-supply of good quality stock in the UK – currently there is only one dementia care home bed for every four that are needed. Rising demand coupled with limited supply indicates the cost of care and value of facilities can only go up.
1. Demanding management with specialist nature – The multi-tenanted and operational nature of some specialist properties requires an intensive management structure and relies on the success of the individual operator. The specialist nature of the properties should be considered as properties completed to dementia standards offer limited scope to change the use, as well as to add value.
2. Continuing need to upgrade & replace – Many existing inappropriately used and sub-standard properties need upgrading and significant investment, despite the massive investment that has already been made in medical facilities over the last 15 years. 3. The demand is driven by structural, demographic changes – rather than cyclical change or new demand. All evidence proves we’re living longer and whilst we all want to live in our own homes for as long as possible, mental and physical deterioration in the elderly can make this impossible. 4. Relatively high-yielding. High-quality, primary healthcare facilities are seeing transactional yields of 7 per cent or better (Source: Colliers) and offer more stability in periods of weak financial markets and reduced consumer spending.
2. Reputational Risk – The mistreatment and misconduct of residents and relies entirely on the operator responsible for the care homes. The key is to invest with your eyes open and perform full due diligence on the operators. 3. Higher potential costs – high quality providers may also operate with higher costs due to investments in quality facilities and services within the enterprise. 4. Poor business models – it is important to understand where the income is coming from and the nature of those people. Is the income coming from local authorities, private wealth or foundations? The mix of these determines the achievable rents for the operator.
5. Long-term occupancies & long leasebacks – Investing in a long lease property can offer attractive long-term cash flows, with the added benefits of stability, security and potential capital gains.
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Future proof property investments
A Guide to Care Home Investments
The need for suitable UK care homes is inevitably increasing and there is significant need for practical living and accommodation solutions for the elderly. One in five care homes in England are failing to meet set national standards for safety and care, which is driving a passion for developing this asset class from both businesses, banks and individuals.
Care for the elderly is worth
£14.5 billion
One in Four
each year.
people above 90 are living in communal care homes.
There are
12 million over 60s in the UK alone.
Contact us about available care home opportunities today. Call +44(0)1202 765011 for more information.
Demand will grow
60% by 2023, increasing to
150% by 2043.
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Investor Opportunities
A Guide to Care Home Investments
Healthcare real estate can accommodate mainstream investor requirements. Structured rents where the investor is insulated against fluctuations in operator performance and income bring healthcare into the residential investment market. Unitised care home opportunities provide an affordable, profitable and ethical investment proposition.
Contact us about available care home opportunities today. Call +44(0)1202 765011 for more information.
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Newton Manor Care Home Development Summary Newton Manor is a 78-bed care facility in Greater Manchester, providing care services to both local authority and private individuals. The open and operational facility will undergo a full schedule of refurbishment to bring it in line with dementia design guidelines including appropriate decor and furnishing specifications. The care home offers a unique sense of community which is further extended by a multi-sensory garden, inspiring the health and emotional well-being of residents, further promoting their independence and sense of community. Offering outstanding levels of care, accommodation and community ensures Finchley Court attracts high referrals from the Greater Manchester Clinical Commissioning Group (CCG) in an area where there is a higher demand for dementia care than there are facilities to provide it.
A Guide to Care Home Investments
Purchase Highlights 99 99 99 99 99 99 99 99 99
Rooms available for £65,500 Circa 8% NET returns for 25 years 125% buy-back option at year 10 No ongoing fees or charges Specialist dementia facility with 78-beds Schedule of renovation planned Multi-sensory garden to promote health and well-being Excellent location in Greater Manchester Experienced specialist care home management team in place protecting your investment 99 Reserve now for only £1,000
Newton Manor offers an exceptional buy-to-let opportunity, which delivers an annual rental income of circa 8% over 25 years, and comes with an assured developer buy-back delivering an exceptional ROI.
• • • •
78 bed care facility Open & operational with a schedule of renovation planned Fully managed by experienced care home operators High demand for dementia care - exceeding current provision
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Gramont House Development Summary Gramont House presents an ideal opportunity to invest in the ethical and sustainable care home industry. Located in the desirable and affluent area of Bingley, West Yorkshire, Gramont House is an open and operational nursing care facility in the UK. With a total of 85 ensuite bedrooms the centre will undergo a rolling programme of refurbishment, which will work considerately alongside the staff and residents and be transformed into a high-quality residential, nursing and dementia specific care home that will appeal to both privately funded and local authority funded individuals. The home is within walking distance to Bingley town centre, and offers a good range of local amenities and transport links for visiting friends and family.
A Guide to Care Home Investments
Purchase Highlights 99 99 99 99 99 99 99 99 99
Rooms available for £75,000 Circa 8% NET returns for 25 years 125% buy-back option at year 25 4 different exit options Up to 225% ROI No ongoing fees or charges Specialist dementia facility with a schedule of renovation planned Located close to transport links & local amenities Experienced specialist care home management team in place protecting your investment 99 Reserve now for only £1,000
Gramont House offers the opportunity to purchase a hassle-free, fully managed commercial proeprty. The ethical investment will accelerate the rate of operational improvements, enabling those who require care to benefit from exceptional facilites and excellent levels of service.
• • • •
85 fully-furnished care suites Rolling schedule of refurbishment Fully managed by experienced care home operators 8% NET yields for 25 years
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Wagons Way Development Summary Wagons Way is a 58 bed care facility in Washington, North East England that provides care for both private and local authority individuals that require dementia, nursing and residential care. Currently operational, a rolling schedule of refurbishment is planned to improve on the standards of the facility, including specialist interior design and facilities. Available for investment purchase, this new commercial buy to let offering offers circa 8% NET rental yields per annum with a buy back option of up to 125% and an ROI up to 225% depending on your exit strategy. A choice of 4 assured exit strategies provides ultimate flexibility whilst rewarding long-term commitment with greater returns, delivering the most efficient and stable operation.
A Guide to Care Home Investments
Purchase Highlights 99 99 99 99 99 99 99 99 99 99
Rooms available for £58,500 Circa 8% NET rental income for 25 years Up to 225% sell back option No ongoing fees or charges A choice of four exit strategies Schedule of renovation planned State of the art facility offering specialist nursing and palliative care Located in an area of substantial demand in Washington, UK Experienced specialist care home management team in place Reserve for £1,000
Additionally with 2 purchase options, you may purchase a unit either with the full cash input of £58,500 and receive your first year’s rental income within 28 days of exchange, or take advantage of the by deduction model and benefit from a lower cash input of £53,820 by offsetting £4,680 against your 1st years rental income. All returns from year 2 onwards are paid annually in arrears.
• • • •
58 bed care facility Open & operational - providing immediate returns Rolling schedule of renovation planned Fully managed by experienced operators
Contact us about available care home opportunities today. Call +44(0)1202 765011 for more information.
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Sources Age UK; Later Life in the United Kingdom: http://www.ageuk.org.uk/Documents/ EN-GB/Factsheets/Later_Life_UK_factsheet.pdf?dtrk=true MSCI: Healthcare Outperforms All Commercial Property: https://www.ipd.com/ about/media_centre/news_archive/2015/UK%20Healthcare%20Annual%20 2014%20results.pdf http://realestate.ipe.com/investors-in-healthcare/10001774.fullarticle
Ageing of the UK population, Released 25th June 2015: http://www.ons.gov.uk/ ons/rel/pop-estimate/population-estimates-for-uk--england-and-wales--scotlandand-northern-ireland/mid-2014/sty-ageing-of-the-uk-population.html
1
House of Lords Report: Ready for Ageing?: http://www.cpahq.org/cpahq/ cpadocs/UK%20Parliament%20HOL%20Ready%20for%20the%20Ageing. pdf?WebsiteKey=b62c9100-bdad-479a-a8c3-2a484d7c8297&=404%3bhttp%3a% 2f%2fwww.cpahq.
2
The NHS Productivity Challenge, The King’s Fund (May 2014): http://www. kingsfund.org.uk/sites/files/kf/field/field_publication_file/the-nhs-productivitychallenge-kingsfund-may14.pdf
3
Care Quality Commission: http://www.cqc.org.uk
4
Age UK: http://www.ageuk.org.uk/latest-press/life-in-britain-has-got-worse-saythird-of-over-65s
5
Knight Frank: http://www.knightfrank.co.uk/commercial/healthcare
6
W. www.select-portfolio.co.uk T. +44(0)1202 765011 E.
[email protected]
© Select Portfolio, 2015. The information held within this document is for information purposes only. Select Portfolio, their clients and any joint agents give notice that: 1. They are not authorised to make or give any representations or warranties in relation to the property either here or elsewhere, either on their own behalf or on behalf of their client or otherwise. Select Portfolio is not responsible for guaranteeing income or projections provided by the developer. It should not be assumed that the property has all necessary planning, building regulation or other consents and Select Portfolio has not tested any services, equipment or facilities. Purchasers must satisfy themselves by inspection or otherwise.
