The Road to Recovery
After a challenging time for the care sector, which was exacerbated by a second wave of the virus, Christie & Co notes promising signs of recovery.
Thanks, in part, to the success of the vaccine rollout in the UK, the rate of COVID-19 infection levels and deaths within care homes has dramatically decreased, enabling homes to accept new admissions. Similarly, relatives and prospective residents are now more confident of moving into a care setting due to reductions in self isolation and the fact that regular family visits are now much easier to achieve.
Average occupancy is showing signs of improvement, but overall increases are slow and many providers are focussed on maximising income from local authority or CCG funded clients with complex needs.
Christie & Co conducted a survey of care operator market sentiment across the UK, and reports that 45 per cent of respondents said their occupancy has recovered, yet 39 per cent said their occupancy levels were below 80 per cent which shows that there is a still a way to go before the sector returns to pre-pandemic levels.
Transaction Market Supply & Demand
Demand for care homes remains strong across all buyer groups as it was pre-pandemic, but the second wave of the virus delayed some care homes coming to the market as owners grappled with COVID-19 outbreaks and occupancy challenges.
The strength of buyer demand, coupled with a relative shortage of stock, means that pricing is holding up well, with multiple offers being routinely received. There is improving appetite across the market spectrum, with the top end of the market fuelled by strong investor interest which is cascading through the rest of the market.
20 per cent of sentiment survey respondents said they are looking to sell their business in 2021, whilst 29 per cent are looking to buy, which highlights ongoing operator confidence in the sector.
Market Activity & Investment Appetite
After a pause last year, investment activity has kicked-off with increased institutional interest in the sector as well as strong interest in the UK care sector from overseas capital, with European consolidators becoming increasingly active in the UK market.
Specialist markets remain strong as they have been relatively unaffected by the pandemic and the secure income streams continue to appeal to private equity groups and infrastructure funds.
The development market continued largely unabated through 2020 as developers and operators took a longer-term view off the back of the forward-looking demographic demand drivers and the structural undersupply of future-proof care beds in the UK. Development activity in 2021 remains very strong thanks to the high demand from a range of institutional, sector specialist and overseas investors for new build care homes let on long-term leases to good quality operator covenants.
As with the going concern market, a relative shortage of opportunities has resulted in strong interest and a compression of yields for such forward funding opportunities. Christie & Co expects this trend to continue as new capital enters the market with many investors actively targeting healthcare due to its strong needs-driven underpin and operational real estate exposure.
Pricing & Funding
Multiples and pricing for care businesses have remained largely unaffected by the pandemic, however operational challenges have impacted many operators' financial performance.
45 per cent of sentiment survey respondents believe values would increase during 2021, with 33 per cent expecting little improvement.
Lenders are closely monitoring occupancy levels and supporting operational performance across their client groups with indications that many providers fared better than expected.
Richard Lunn, Managing Director at Christie & Co, comments
, “The pandemic has thrown a spotlight on the industry and, in many respects, has shown the importance of care provision in the UK. As a result, we have seen an increase in the demand for homes from providers looking to grow their portfolios.”
To read the full mid-year review, click here: https://www.christie.com/news-resources/publications/july-2021/care-mid-year-review-2021/
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