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ScottishHealthcare

2008 has been, to say the least, an interesting year for the healthcare sector in Scotland. Care home values continued to rise in early part of the year and demand remained steady for good quality care homes and care homes with nursing.

Indeed, demand continues to outstrip supply despite the ongoing credit crisis that has developed in recent months. Banks we have spoken to remain optimistic about the sector and demographic analysis supports their views. However, we cannot escape the harsh realities of the current financial turmoil as it is the cost and availability of finance that affects buyers and existing operators.

The upside of the current economic climate is the availability of sites for healthcare development which are now much more keenly priced than they were 12 to 18 months ago. We currently have a selection sites with outline planning permission for care home use in addition to going concerns.

With the introduction by the Care Commission of quality star rating system the care sector must continue to meet the expectations of buyers and of course service users to stay ahead of the field.

Savills Scottish Healthcare team has recognised that care home operators and would- be buyers often require more than just traditional agency and valuation services, particularly in challenging market conditions. Adding real value is about analysing all aspects of your care business.

A selection of supplementary services is highlighted below;

Research – Reports providing detailed demand analysis are available to accurately pin point the type of care service required based on demographics and existing provision. This is invaluable knowledge for an operator looking to new build, diversify into different types of care service or extend their existing facility.

Planning – Our dedicated Scottish Planning team know how to get the best out of healthcare related projects by working up an application to meet your needs.

Building Surveys – Savills can provide a detailed report on existing building condition including health and safety requirements and determine a phased maintenance programme over a number of years.

contentsMeeting the challenge

Sold by Savills Healthcare

The care home sector

Valuations from 2008

Healthcare team

Dementia

Care villages

Capital allowances

Planning & regeneration

Savills Private Finance

Capital Allowances – Don’t lose out on your entitlement whether it be an existing business or new build facility.

Finance – Savills Private Finance are specialists in funding the healthcare sector. Tailored finance at competitive rates is essential in today’s uncertain economic climate.

Energy Performance Certificates (EPC) From 4 January 2009 all commercial properties offered for sale in Scotland (this includes Care Homes) must have an EPC at the commencement of marketing. An EPC is a report detailing the energy efficiency of the building and it requires an accredited EPC assessor to carry one out; at Savills we can provide this service.

Next year will be a challenging one but the healthcare market is poised to ride the storm and emerge even stronger and better in years to come. Savills will be there with its full range of services to meet your needs.

meeting the challenge

SOLD• Grayforth Care Home, Burntisland, Fife

• Registration 24

• Bought by an expanding care operator

SOLD• Ardenlee & Redford Care Homes, West Lothian

• 2 LD homes each registered for 8

• Bought by a leading Scottish based LD operator

SOLD• Site at Prestonhills, Glenrothes

• Consent worked up to 60 places by Savills Planning team

• Acquired by a prominent locally based care group

SOLD• Bruach House, Nairn

• Registration for 19

• Bought by existing healthcare operator

sold by Savills Healthcare

The healthcare sector has achieved year on year price growth with strong values across a range of businesses in recent years. In particular we have seen high multiples applied to care homes which have been partly driven by a lack of properties for sale, corporate purchasing power and investment by private equity.

Whilst the corporates and private equity investors are now less active, due to the credit squeeze, it is encouraging to see that the care market is maintaining its position, and values. This has been assisted by several lenders continuing to provide care finance whilst other property sectors are unable to raise funds.

The main reason for this is demographics, the care home sector is expecting high levels of demand for beds and facilities due to the country’s growing elderly population in the future. Even conservative estimates indicate an increase of those aged 75 plus of circa 76% by 2026, and for the first time this year it is estimated that the number of pensioners in the UK exceeded the number of those under 16 years of age.

In order to meet the growing needs of society, as a result of demographics, there has been a noticeable increase in healthcare development activity. This is not just by large corporates, but also with regional groups and even individuals with land or expansion space. An indication of the breadth of activity we have been involved with this year can be seen from the snapshot of examples below.

Need for quality

In all of this quality is paramount, that is quality of care and the quality of the facility on offer. Competition within the industry and publicity from bodies such as Scottish Care and the Scottish Commission for the Regulation of Care has resulted in residents and, equally importantly, their families raising their expectations in terms of the quality of care and facilities they expect. Establishments that are not maintained to a high standard, refurbished or upgraded regularly will see values fall in the future.

And for the future? In spite of the current economic problems, healthcare is a vital social provision. There is still a need for good quality care and this need will only increase in the future.

Over 80’s % population

by 2026 (by district)

50+35 - 5025 - 3510 - 250 - 10

the carehome sector

Savills are appointed to the panels of all the leading banks in the sector and in the last year carried out c.400 valuations for bank lending with a value approaching £1bn. In addition, we provided portfolio advice to corporate operators and investors totalling a further £2bn.

Notable instructions include a group of private hospitals at c.£150m, the Avery Healthcare portfolio of c.£100m, Sunrise Senior Living portfolio in the UK and Germany and assisted living developments for Raven Audley, Care Village Group and Signature.

We are also external valuer to Assura Properties Limited, a market leading investor in the medical sector with a portfolio exceeding £400 million.

HeatherfieldCare Home (Registration 62)

Operator: Tower Holmes

Funder: The Royal Bank of Scotland

Wardside HouseCare Home (Registration 32)

Operator: Wardside House


Westhill Medical CentreMedical Centre

Investor: Assura Properties Ltd

Funder: National Australia Bank

Glasgow Medical CentrePrivate Hospital (ACAD)

Operator: Sheehan Medical

Funder: Norwich Union

Spark of GeniusChildren’s Units

Operator: Spark of Genius

Funder: Barclays Commercial

CherrytreesChildren’s Nursery (Registration 81)

Operator: Cherrytrees


valuations from 2008

The Savills Healthcare team was established in 2000 by Craig Woollam (Agency Director) and Andrew Surgenor (Valuation Director). Since that time the team has grown to 14 fee earners, comprising 4 agents and 10 valuers, and we are solely dedicated to the healthcare sector.

The team has a broad base of experience across the healthcare sector and we have a specific focus on the following areas:

Nursing and residential care homes•

Specialist care homes•

Clinics and treatment centres•

Independent hospitals•

Secure units•

Specialist schools and colleges•

Primary care•

Extra care housing/care villages•

Development •

Children’s day nurseries•

healthcare team

We are supported by a number of colleagues within Savills from other disciplines and we therefore offer a wide range of services available to our clients.

Whatever your requirements, there is someone within the team that can assist you.

Please refer to the back cover for a full list of contact details.

dementiaWe are seeing significant interest in developing and operating dementia specific units across the country. Why is this?

In Scotland alone there is an estimated 58,000 to 65,000 dementia sufferers, many of whom may not be diagnosed and are living in the community or in care homes without receiving specialist care.

From studies published by both the Alzheimer’s Society and Alzheimer Scotland it is clear that there is the potential for a tremendous shortfall in dementia specific care provision. Alzheimer Scotland estimate an increase of circa 75% of sufferers in Scotland alone (to between 102,000 to 114,000 people) by 2031. This is significant as dementia is the major cause of disability in those aged over 60 and an estimated 40% of those with the condition require full time care. To meet this need will require not only more facilities, but better designed facilities and a well trained workforce.

There are a range of responses to this from small specialist floors within a new facility (such as Louisebrae, Mead Medica) or extensions added to an existing nursing home up to full scale facilities of up to 40 beds (such as Ballingry, Avondale Care).

With rising expectations from service purchasers, residents and their families it is clear that the sector must ensure it is adequately prepared to meet this demand.

carevillagesThere has been much conjecture around the topic of care villages in Scotland in recent years. But what actually is a care village, and are we likely to see them in the near future?

Care villages are characterised by large land requirements and a mix of housing types, care facilities, leisure facilities and social provision. Typically there will be bungalows and small scale flatted dwellings providing easily managed, disabled friendly housing within landscaped and managed grounds. Residents within these units are normally aged over 55 and may not need care but will have the comfort of purchasing care packages from the operator as and when required. This allows a good degree of independent living and many residents never have the need to call on assistance.

A care facility on site will provide the care ‘umbrella’ for the housing and provide beds for those that require 24 hour care. Leisure facilities are a requirement as the elderly are generally living more active lives than before and they also help in forming part of the community centre for the village.

At present there are circa 40 schemes in the UK, with as many again in the proposal stage, although in Scotland there are few examples that could truly be termed care villages. There is not a single model that applies to all situations and this is shown by the differences between schemes such as Auchlochan, Inchmarlo and Highland Park.

With a growing elderly population, care villages can provide the potential to downsize into a more manageable home, free up some equity from the sale of their existing home and all with the added assurance of access to care if required.

There has been a doubling of provision every five years and it is only a matter of time before more schemes appear in Scotland. However in order to be successful they require an experienced developer and operator, access to suitable sites, local demographics that support the model and a supportive local authority. A combination that is not always easy to find.

capital allowancesCapital Allowances and the Healthcare Sector

The healthcare sector remains a capital intensive industry as firms expand by acquiring, developing or refurbishing land and buildings. Therefore the recent changes to the capital allowances regime affect all in this sector.

Impact of budget 2007 on the healthcare sector

The fundamental change to the capital allowances regime is the introduction of a new asset pool ‘integral features’ which has resulted in certain items of plant and machinery to be given at a reduced rate of 10% per annum, as opposed to the previous 25%.

Similarly, plant and machinery allowances will be reduced to 20% per annum.

The effect of the above is that capital allowances will take longer to realise, since the depreciation rates are reduced and there is a new asset classification. In turn this will mean higher tax payments!

However, further incentives have been provided to promote installation of ‘greener’ and carbon reducing plant, through the expansion of the Enhanced Capital Allowances regime. Assets qualifying for this form of capital allowance will attract a 100% tax relief in the year of expenditure. Therefore, by understand the specification of certain plant, you may be able to improve the cash flow of your tax savings.

Savills Capital Allowances consultancy

Savills have great experience in capital allowances issues relating to both the acquisition of existing, and construction of new, nursing homes, hospitals, clinics and doctors’ surgeries.

One example of our experience: -

At the request of a nursing home owner, we reviewed two prior capital allowances valuations previously prepared by the owner’s accountant. In both instances the valuation increased by over 20%.

The main area where we were able to add value was, as surveyors, we are able to understand the construction principles and coupled with our tax knowledge this helped identify further qualifying assets.

It should be noted that the owner’s accountant was wholly supportive throughout the course of the above exercise, as he accepted that without a construction background, capital allowances was not an area of his expertise.

Summary

It is now more important than ever for all businesses and their advisors to consider capital allowances in detail. This is because the benefits will be gradually reduced in the short to medium term whilst the complexities of the legislation will make the process of identifying and maximising value on qualifying expenditure harder to achieve.

Savills are offering at no cost, an initial review to determine if we could add value to an existing, past or future claim to capital allowances.

Savills PrivateFinanceWho we are

SPF Commercial is part of Savills Private Finance, one of the UK’s leading independent mortgage brokers. SPF was formed in 1997 and is part of the Savills Group.

SPF Commercial offers a personalised service to clients whose mortgage requirements are managed from start to finish. We pride ourselves on our quality of service, offering the client:

Access to bespoke products to suit the • individual or company

Flexibility•

Transaction management•

Our clients:

Private individuals•

Owner occupiers•

Institutional investors•

Property companies•

Development companies•

Overseas investors•

Our clients value our independence and our ability to arrange appropriate financing solutions to suit their requirements.

Putting it into practice

The easiest way to see what SPF Commercial can do is to give some examples of our achievements. We have:

Arranged an £80m loan facility to • finance a major UK healthcare operator’s expansion plans.

Arranged £35m of senior debt • and mezzanine provision for the expansion of a nursing home operator’s existing group.

Arranged £24m partial refinance of • one of the UK’s top 8 healthcare operators.

The last example here completed in late September 2008 and illustrates that despite the effects of the “Credit Crunch” funding for good quality healthcare applications remains readily available.

Try us

Our team of specialist advisers is happy to consider any commercial funding request and advise you of the most competitive package available. We are still able to offer funding over base rate – up to a maximum of £15 m. Charging rates from 1.40% over base with leverage available up to a maximum of 80% of valuation. Repayment terms are available up to a maximum of 25 years to include an initial 3 year interest only period.

planning & regenerationSavills Planning & Regeneration team in Scotland has been instrumental in taking forward healthcare related developments including community hospital facilities, retirement villages and care homes.

The case for development has been successfully argued focussing on the socio-economic benefits stemming from the quality and location of facilities, local employment and the re-use of historic and listed buildings, all set against statutory requirements which are unique to Scotland.

Glenrothes, Fife for RJM Developments (Scotland)

In this example, the planning team worked jointly with Savills Healthcare to handle a planning application for a care home development in Glenrothes. Using our expertise and contacts within the planning department at the local authority, we were able to assemble a fully justified case for the development of this tight 0.7 acre site. Overcoming conservation area, access and servicing concerns, planning permission was obtained for a 60 bedroom care home instead of the 40

bedroom capacity that the council was originally prepared to accept, thereby adding significant value to the overall development.

Following the success of this commission, the team was instructed by the client to promote four further care home developments.

contacts

Sunil Sharma National and Corporate

0141 222 5887 [email protected]

Alastair Wood National and Corporate


Craig Woollam National and Corporate


AgencyCharles Harrison Pinder National and Corporate


Alan Matthews South, South West and Midlands


Alastair Strong Scotland


Andrew Surgenor National and Corporate


ValuationJon Hodgkins Midlands and South West


Colin Rees Smith London and Home Counties


Nigel Fransham Midlands, North West and Wales


Samantha Rowland Central, Home Counties and East Anglia


Alan Bennett Scotland and North East


Iain Lock National and Corporate


InvestmentMiles Auger National and Corporate


Gary Witham National and Corporate


C2 / Institutional

Simon Parker National and Corporate


AuctionsSandy Hamilton National and Corporate


Savills Private FinanceDavid Yeadon National and Corporate


Capital Allowances

PlanningAndy Topham Manchester and North West


Designed and produced by Savills Commercial Marketing: 020 7499 8644Cert no. SGS-COC-003620

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