CARE HOMES REVIEW AUTUMN I 2013 - Accelerating success.
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CARE HOMES REVIEW AUTUMN I 2013 Accelerating success.
TABLE OF CONTENTS
Care Homes Review 3
Key Results
Long-term Elderly Care and Specialist Care 4
Key Performance Indicators (KPIs)
Nursing and Personal Care Sectors 5
Specialist Care Sector 8
Conclusion 9
Research Methodology 11
Source: Moorlands Lodge, Hindhead - Signature Senior Living
P. 2 | COLLIERS INTERNATIONAL
RESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
Overall, we are seeing occupancy
levels beginning to plateau across Care Homes Review
all three sectors although there
is some optimism demonstrated This is the eighteenth in a regular series of research papers which provide an in-depth
by the increase in personal care analysis of the healthcare property and business sector, focusing on long-term personal
occupancy. Looking ahead, the care and nursing care for both the elderly and specialist markets. Colliers International
has reported performance KPIs in the healthcare sector since 2002. Our analysis is
most likely scenario is the homes
based on actual performance data confidentially sourced for valuations, due diligence
that are largely relying on local consultancy work and transactions undertaken by the Colliers International Healthcare
authority funding, operating out team. The database includes 4,500 records from the full spectrum of care providers,
of poorer quality assets will find from national corporates to regional private companies and operators of single homes.
it harder to maintain occupancy
The sample of care homes varies in each six month period but typically has a corporate
levels and EBITDAR margins. bias. This paper provides commentary on indicative trends in the healthcare market for
The sector itself remains buffeted the first half of 2013. More detailed data is available on many aspects of this paper. For
by legislative uncertainty as further information please contact us (contact details on back page) or visit our website:
www.colliers.com/uk/healthcare
the Social Care Bill continues
its ponderous passage through
Parliament with an ill-defined
‘capped cost’ mode and no clear
adjudication process for local fee
referral rates. There is yet little
financial certainty for care home
operators dependent on public
referrals.
Dr Walter Boettcher | Director |
Research and Forecasting |
Colliers International
CARE HOMES
Two main types of CQC registered care
home are covered in this paper:
• Care Homes without Nursing Care
(PC) Personal care homes offer either
short-term or long-term care. They
provide accommodation, meals and
personal care, such as help with
bathing and eating.
• Care Homes with Nursing Care (NH)
These homes are similar to residential
homes but they also employ registered
nurses who provide care for more
complex health needs.
SPECIALIST HOMES
Specialist care homes (SP) generally
provide care in the 18-65 age categories,
catering for people with long-term
physical and learning disabilities.
Source: Greenacres, Meltham – Target Advisers
COLLIERS INTERNATIONAL | P. 3
RESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
OCCUPANCY RATES
% of
Key Results
available beds
NH PC SP
LONG-TERM ELDERLY CARE AND SPECIALIST CARE
2013 H1 89.9 88.7 89.9 Our research focuses on the key drivers of the care home industry, covering occupancy
rates, average weekly fees, payroll costs, non-payroll costs and profit margins
2012 H2 90.1 88.3 89.9
(EBITDAR). These five measures have been adopted as the Colliers International Key
2012 H1 90.1 88.8 90.8 Performance Indicators.
Occupancy Rates:
While fluctuations are only marginal, occupancy rates have fallen below 90% in all three
AVERAGE WEEKLY FEES sectors; nursing, personal care and specialist care. Personal care and specialist care
occupancy rates have been below 90% since H2 2012; however this is the first time that
£s per week occupancy levels in the nursing sector have been sub 90%.
NH PC SP
Average Weekly Fees:
2013 H1 661 522 1,424 In H1 2013, average weekly fees have reduced significantly in both personal care (-1.5%)
2012 H2 665 530 1,462 and specialist care (-2.6%). Nursing care average weekly fees have declined marginally
in the first six months of the year.
2012 H1 670 534 1,431
Payroll Costs:
Wage costs across the sectors were largely stable. Nursing sector payroll costs remained
the same over the first half, while payroll costs in both the personal care and specialist
PAYROLL COSTS care sectors have declined marginally.
% of total Non-Payroll Costs:
revenue
NH PC SP Non-payroll costs rose marginally in specialist care in H1 2013 but reduced slightly in
personal care down to 16.9%. Non-wage costs remained static in nursing homes.
2013 H1 56.6 51.4 52.2
56.6 51.5 52.3
EBITDAR:
2012 H2
Our research shows that profit margins (before making an allowance for central head
2012 H1 56.1 52.2 51.2
office costs) in the nursing sector have remained unchanged over the last six months at
28.6% of total revenue. However, EBITDAR margins for personal care homes have
increased marginally, while profit margins in specialist homes have slipped for the
second consecutive period, after remaining relatively stable since 2010.
NON-PAYROLL COSTS
% of total
revenue
NH PC SP
2013 H1 14.5 16.9 13.1
2012 H2 14.5 17.3 12.9
2012 H1 14.0 16.5 13.6
PROFIT MARGIN (EBITDAR)
% of total
revenue
NH PC SP
2013 H1 28.6 31.5 34.2
2012 H2 28.6 31.0 34.3
2012 H1 29.3 31.0 35.3
Source: Leeming Bar Grange, Leeming Bar – Target Advisers
P. 4 | COLLIERS INTERNATIONAL
RESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
Key Performance Indicators (KPIs)
NURSING AND PERSONAL CARE FIGURE 1: AVERAGE OCCUPANCY: 2003-2013 (2YR ROLLING AVERAGE)
SECTORS PC NH 10 year Data Period Average
95
Occupancy Rates:
94
The occupancy rate is calculated by the
total number of residents at the time of 93
valuation/transaction, divided by the number 92
of available beds.
Occupancy %
91
Although occupancy levels in the nursing
90
sector are down slightly on H2 2012 levels,
they appear to have largely levelled off and 89
now stand at 89.9%. However, this is the 88
first time that they have been recorded at
87
less than 90% since the start of our data set
in 2002 (see Figure 1). In contrast, we are 86
H2 03
H1 04
H2 04
H1 05
H2 05
H1 06
H2 06
H1 07
H2 07
H1 08
H2 08
H1 09
H2 09
H1 10
H2 10
H1 11
H2 11
H1 12
H2 12
H1 13
seeing a positive uptick in occupancy levels
in the personal care sector of 0.4 percentage Source: Colliers International
points - the last time an increase was
reported in this sector by such an amount FIGURE 2: AVERAGE WEEKLY FEES IN NOMINAL AND REAL TERMS
was in H2 2008. NH Average Weekly Fees NH Real Fees PC Average Weekly Fees PC Real Fees
700
Chris Saberton, Director in the Healthcare 650
team, remarked that the slight increase in
600
personal care occupancy rates was,
550
“perhaps indicating a tendency by Local
Authorities to place more dependent service 500
users at the lowest possible fees”. 450
£s
400
Average Weekly Fees:
350
We have been tracking the relationship
300
between nominal fees and real fees (weekly
250
fees with inflation taken into account) and
have found that although overall nominal 200
H2 03
H1 04
H2 04
H1 05
H2 05
H1 06
H2 06
H1 07
H2 07
H1 08
H2 08
H1 09
H2 09
H1 10
H2 10
H1 11
H2 11
H1 12
H2 12
H1 13
fees are increasing in both the nursing and
personal care sectors, real fees are much
Source: Colliers International
lower and exerting significant pressure
on operators. FIGURE 3: P
AYROLL COSTS AS A % OF TOTAL REVENUE 2003-2013 (2YR ROLLING AVERAGE)
Nominal fees and real fees have fallen
marginally since the second half of last year PC Payroll Costs Nursing Payroll Costs
70
(see Figure 2) and in the personal care
sector fees have withstood inflation 60
pressures better than nursing sector fees.
50
Personal care nominal fees have seen a 61%
% of Total Revenue
increase since H2 2003, while in real terms 40
fees have increased by 20%. However, since
H1 2009, real fees in the personal care 30
sector have fallen by 3%.
20
Nursing care nominal fees have increased
48% since 2003, but have only increased by 10
10% in real terms over the same period.
0
Since H2 2012, our data has shown a
H2 03
H1 04
H2 04
H1 05
H2 05
H1 06
H2 06
H1 07
H2 07
H1 08
H2 08
H1 09
H2 09
H1 10
H2 10
H1 11
H2 11
H1 12
H2 12
H1 13
downward trend in average weekly fees and
Source: Colliers International
COLLIERS INTERNATIONAL | P. 5
RESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
this is continuing. In the year to June 2013,
FIGURE 4: NON-PAYROLL COSTS AS A % OF TOTAL REVENUE 2003-2013 (2YR ROLLING
reductions were reported in personal care AVERAGE)
average weekly fees; down 1.5% to £522.
PC Nursing
Nursing home average weekly fees also saw 22
modest reductions and now stand at £661.
20
Chris Saberton, adds that, “There is obviously
pressure on fees for both personal care and
18
nursing care. This could be due to a higher
proportion of publically funded fees when
16
%
compared to self-funders”.
Payroll Costs: 14
Payroll costs including wages and NIC costs are
12
taken from accounts at the time of valuation/
transaction.
10
Payroll costs remained largely unchanged
H2 03
H1 04
H2 04
H1 05
H2 05
H1 06
H2 06
H1 07
H2 07
H1 08
H2 08
H1 09
H2 09
H1 10
H2 10
H1 11
H2 11
H1 12
H2 12
H1 13
(see Figure 3). Payroll costs in nursing homes
remain at 56.6%, with a minor reduction in Source: Colliers International
payroll costs in the personal care sector.
FIGURE 5: PERSONAL CARE AVERAGE FOOD COSTS PER PERSON PER WEEK
Non-Payroll Costs:
30 300
Non-payroll costs are calculated by dividing Avg Food Costs per Person Per Week RPI (All Items)
total costs excluding payroll costs by total
revenue. 25 250
Figure 4 illustrates the proportion of total
£s per person per week
revenue apportioned to non-payroll costs 20 200
from 2003 to date.
RPI (All Items)
15 150
Non-payroll costs for the nursing sector
remain unchanged at 14.5%, with marginal
10 100
decreases reported in the personal care
sector.
5 50
As variable costs continue to rise, our
analysis of food, heating and lighting costs 0 0
per person per week reveals how well these 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 H1 13
increases are being managed by operators in Source: Colliers International, Haver Analytics
the long-term elderly care sectors. Average
food costs are in line with inflation over the FIGURE 6: P
ERSONAL CARE AVERAGE HEATING & LIGHTING COSTS PER PERSON PER WEEK
six months to June 2013 in both sectors and
were around £25 per person per week for Avg Heating & Lighting Costs per Person Per Week RPI (Heating & Lighting)
16 350
the same period.
14
Heating costs per person per week in the 300
long-term elderly care sectors have 12
250
increased below inflation, with reductions
£s per person per week
in overall energy costs in both sectors in 10
200
the first half of the year. Personal care
RPI (Heating & Lighting)
8
heating and lighting costs have declined 150
by 13% since 2010 and currently stand at 6
£12.85 pppw. Nursing home operators are 100
4
seeing the first decrease in heating and
lighting costs since 2012 with costs falling 2 50
by 6% to reach £14.27 pppw. This shows
a decrease of over 18% since 2010. (See 0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 H1 13
Figures 5, 6, 7, 8)
Source: Colliers International, Haver Analytics
P. 6 | COLLIERS INTERNATIONAL
RESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
EBITDAR (Profit Margin)
FIGURE 7: NURSING HOME AVERAGE FOOD COSTS PER PERSON PER WEEK
Profit margin is calculated at the EBITDAR
level (Earnings Before Interest Tax Avg Food Costs per Person Per Week RPI (All Items)
Depreciation, Amortisation And Rent), 30 300
having taken the data at the time of
valuation/transaction. 25 250
Profit margins across the long-term elderly
£s per person per week
20 200
sectors have shown little change since the
end of 2012 despite operators being under
RPI(All Items)
15 150
pressure due to lower occupancy levels
and continued cost constraints. Profitability
10 100
in the personal care sector is slightly up on
H2 2012 figures at 31.5%, while nursing
care profitability is unchanged at 28.6% 5 50
(see Figure 9).
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 H1 13
Source: Colliers International, Haver Analytics
FIGURE 8: NURSING HOME HEATING & LIGHTING COSTS PER PERSON PER WEEK
Avg Heat & Light Costs per Person Per Week RPI (Heating & Lighting)
20 350
18
300
16
250
£s per person per week
RPI(Heating & Lighting)
14
12
200
10
150
8
6 100
4
50
2
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 H1 13
Source: Colliers International, Haver Analytics
FIGURE 9: EBITDAR AS A % OF TOTAL REVENUE 2003-2013 (2YR ROLLING AVERAGE)
PC Nursing 10 yr Data Period Average
36
34
32
% of Total Revenue
30
28
26
24
22
20
H2 03
H1 04
H2 04
H1 05
H2 05
H1 06
H2 06
H1 07
H2 07
H1 08
H2 08
H1 09
H2 09
H1 10
H2 10
H1 11
H2 11
H1 12
H2 12
H1 13
Source: Moorlands Lodge, Hindhead – Signature Senior Living Source: Colliers International
COLLIERS INTERNATIONAL | P. 7
RESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
Key Performance Indicators (KPIs)
SPECIALIST CARE SECTOR FIGURE 10: A
VERAGE OCCUPANCY IN SPECIALIST CARE HOMES 2003-2013
This section of the paper provides analysis of (2YR ROLLING AVERAGE)
the specialist care property and business Specialist Occupancy Rates Specialist Nominal Fees Specialst Real Fees
98 1600
markets, focusing on homes catering for adults
with long-term physical and learning 1400
96
disabilities.
1200
Our analysis shows that the declines 94
1000
reported in H2 2012 have slowed over the
92 800
first half of 2013 with only a marginal %
decrease in EBITDAR in H1 2013, due 600
90
primarily to falling fee levels.
400
88
Occupancy Rates: 200
Occupancy rates remain unchanged at 86 0
89.9% since H2 2012 (see Figure 10). Since
H2 03
H1 04
H2 04
H1 05
H2 05
H1 06
H2 06
H1 07
H2 07
H1 08
H2 08
H1 09
H2 09
H1 10
H2 10
H1 11
H2 11
H1 12
H2 12
H1 13
H2 2010 occupancy rates have fallen by
1.9 percentage points and have fallen by Source: Colliers International
more than seven percentage points since
H2 2007. FIGURE 11: SPECIALIST CARE EBITDAR LARGELY UNCHANGED
Non-Payroll Costs as a % of Total Revenue
Average Weekly Fees: 60 Payroll Costs as a % of Total Revenue EBITDAR as a % of Total Revenue
Average weekly fees in the specialist sector
50
have reduced significantly in H1 2013 by
2.6%, falling to £1,424 (see Figure 10). When
% of Total Revenue
40
taking inflation into account, fees have fallen
by 4.2% since H2 2012 and are down 1.1% 30
since H2 2003. This is the only sector to
20
have experienced negative real fee growth
since the base year. 10
Adrian Ilott, Director, made the following 0
observations: “The specialist care sector
H2 03
H1 04
H2 04
H1 05
H2 05
H1 06
H2 06
H1 07
H2 07
H1 08
H2 08
H1 09
H2 09
H1 10
H2 10
H1 11
H2 11
H1 12
H2 12
H1 13
continues to see pressure on fees. Since
2010, fees in the sector have fallen by Source: Colliers International
12.5% in real terms, against decreases of
6.2% in the nursing sector and 1.7% in
personal care fees. It would seem that a
‘top down’ approach is being applied by
funding bodies when looking to make
savings in care budgets”.
Payroll and Non-Payroll Costs:
Payroll costs declined marginally to
52.2% in the first half of the year after
increasing during 2012 (see Figure 11).
Non-payroll costs increased marginally to
13.1% over the same period. Payroll and
non-payroll cost pressures will continue
to affect specialist care operators, as a
result of reduced weekly fees and
occupancy levels. Source: Coppice Lodge, Nottingham – Target Advisers
P. 8 | COLLIERS INTERNATIONALRESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
Jose de Pablo, Director, mentioned that,
“Specialist operators are seeing payroll
costs continue to creep upwards, even if
their payroll costs per person have been
controlled”.
EBITDAR (Profit Margin):
Profitability in the specialist sector continues
to be under pressure from falling occupancy
levels, fee reductions and inflationary cost
pressures. Since H2 2010, profit margins
have reduced by almost one percentage
point to 34.2% (see Figure 11).
Conclusion
Although our KPI statistics do not show
signs of significant change over the first
six months of 2013, this at least Source: Scarborough Hall, Scarborough – Target Advisers
demonstrates some stability in what
remain challenging trading conditions.
Overall, we are seeing occupancy levels
beginning to plateau across all three
sectors although there is some optimism
demonstrated by the increase in personal
care occupancy. While only 0.4 percentage
points, this is the largest increase since H2
2008. Average weekly fees remain under
pressure across the sectors with no
increases shown in the data set for H1
2013. This is putting pressure on operators
to continue to control payroll and non-
payroll cost increases as much as possible.
Due to cost rationalisation, profit margins
remain largely unchanged over the first
half of 2013 with only marginal downward
pressure seen on specialist care. Looking
ahead, it will be interesting to see whether
these KPIs represent future sustainable
operational performance levels or whether Source: Boroughbridge Manor, Boroughbridge – Target Advisers
we will see further pressures filter
through. The most likely scenario is the
homes that are operating out of poor
quality assets and largely reliant on local
authority funding, will find it harder to
maintain occupancy levels and EBITDAR
margins; well run homes operating out of
better quality purpose built properties,
with a high proportion of private fee paying
residents will continue to outperform the
rest of the market through strong Thanks to Target Advisers and Signature Senior Living
occupancy, year-on-year average fee for providing photographs of their award winning homes.
growth and in many cases EBITDAR
margins well in excess of 30%.
COLLIERS INTERNATIONAL | P. 9RESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
The Care Home Investment Market
The recent results of a Colliers International investment survey shows that investors are increasingly looking beyond
sovereign and political risks in assessing opportunities. Property fundamentals are the main driver in decision making.
This is apparent also in the UK long-term care sector. The sector itself remains buffeted substantially by legislative
uncertainty as the Social Care Bill continues its ponderous passage through Parliament with an ill-defined ‘capped cost’
mode and no clear adjudication process for local fee referral rates. There is yet little scope for the development of
pre-funded long-term care insurance products and little financial certainty for care home operators dependent on public
referrals. Greater clarity may only come after the next election.
Nevertheless, investors continue to show interest in care facilities with strong operators. Care homes have changed
hands at yields of around 7% to 7.5% as evidenced by Target Healthcare’s recent purchases including two purpose built
care homes operated by Orchard Care Homes (for approximately £11.5m representing an initial yield in excess of 7.0%)
and Hambleton Grange Care Home operated by Ideal Carehomes (for approximately £4m representing an initial yield in
excess of 7.0%). Earlier this year, Schroder UK Property Fund forward funded the development of five new care homes
with Care UK for £28m at a 7% IY and the operator Caring Homes, who focus on the private market with a South East
bias concluded a sale and leaseback in May with the American Healthcare REIT who paid £305m at a 6.5% IY. In contrast,
primary health centres have been trading at sub 6% yields, suggesting that greater risk diversity comes at a price. So
despite an appetite to look beyond certain risks, fundamentals remain firmly in the equation.
Dr Walter Boettcher | Director | Research and Forecasting | Colliers International
Source: The Beeches, Brentwood – Signature Senior Living
P. 10 | COLLIERS INTERNATIONALRESEARCH AND FORECASTING REPORT | CARE HOMES REVIEW | AUTUMN 2013
Research Methodology 480+ offices in
Colliers International specialises in all of our valuation and agency activity. 62 countries on
aspects of the healthcare property and
business sector. The team is made up of
The research results, therefore, are indicative
of real trends in the market. The data for this
6 continents
experienced professionals and provides a paper covers over 4,500 records across a United States: 140
wide range of valuation, agency, investment, range of different care providers, including Canada: 42
consultancy and litigation related services to Latin America: 20
corporates and single home operators and Asia Pacific: 195
a variety of clients, from multi-national consists of nursing and personal care homes EMEA: 85
healthcare and finance corporations to in the long term elderly and specialist • $2.0 billion in annual revenue
individual operators. sectors. The data covers the whole of Great
• 1.12 billion square feet under
This research is based on data drawn from Britain and is therefore representative of the management
both formal accounts and unaudited country as a whole. • 13,500 employees
management accounts submitted to support Unless otherwise stated, the data covers a
valuations and agency activity (see map). moving two year data period average, so for
The data is treated confidentially and there LONDON – WEST END
the most recent period ending at June 2013 50 George Street
are safeguards in place to protect the records (H1 2013) the data covers the period from London W1U 7GA
of individual clients. This research paper H2 2011 to H1 2013. This two year rolling +44 20 7935 4499
accordingly differs from most other published average has been adopted to eliminate any RESEARCH AND FORECASTING
data which typically relies on informal problems caused by outliers and helps to Lisa Dean
surveys and informed comments. All data smooth any irregularities which may distort Associate Director
used in this research report has in addition the true picture of what is happening in the +44 20 7487 1961
lisa.dean@colliers.com
been diligently checked by the Colliers market place.
International Healthcare team in the course HEALTHCARE
Adam Lenton
Number of Sites
Head of Healthcare
AN ILLUSTRATIVE > 40
30 to 40 +44 20 7487 1994
MAP OF THE Number
25 to 30 of Sites
adam.lenton@colliers.com
20 to 25
LOCATION OF > to40
15 20
OPERATORS 30to to
10 40
15
0 to 10
25 to 30 We would like to extend our thanks to Target
20 to 25 Advisers and Signature Senior Living for providing
15 to 20 photographs of their award winning homes for this
10 to 15
publication.
0 to 10
Disclaimer: This report gives information based primarily
on published data which may be helpful in anticipating
trends in the property sector. However, no warranty is
given as to the accuracy of, and no liability for negligence is
accepted in relation to the forecasts, figures or conclusions
contained in it and they must not be relied on for investment
purposes. This report does not constitute and must not be
treated as investment advice or an offer to buy or sell
property. November 2013 13238
:Colliers International is the licensed trading name of
Colliers International Property Advisers UK LLP which is a
limited liability partnership registered in England and Wales
with registered number OC385143. Our registered office is
at 50 George Street, London W1U 7GA.
.
COLLIERS INTERNATIONAL | P. 11www.colliers.com/uk/healthcare Accelerating success.
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