Lone Star is close to agreeing a £250m takeover of Aviva Investors’ Quercus Healthcare Fund – a portfolio of 75 care homes.
Investor interest in the sector has been boosted by the decision of councils to subsidise the cost of care workers, who will be paid the National Living Wage.
Once the deal completes, Lone Star will take full ownership of a portfolio that generates annual rent of around £30m.
Lone Star, which is already a minority stakeholder in the fund through its ownership of Quintain, holds around 12% of shares in the portfolio.
The care homes have a £105m loan from Lloyds secured against them that is to be repaid upon completion.
The Quercus portfolio is let to multiple tenants including Guy Hands’ Four Seasons, which runs around 20 homes, as well as Caring Homes, Renaissance, and Majesticare.
Most of the homes are in Yorkshire and Scotland, but a substantial number are in the North West, West Midlands, East Anglia and East Midlands. Only a small proportion of the portfolio is in the Home Counties and the South of England.
Lone Star is expected to consider capex opportunities to increase the Quercus platform on a selective basis. It is not expected to expand the portfolio aggressively.
The private equity firm already has some interest in the sector mainly through its acquisition of the £2.3bn Project Churchill non-performing loan portfolio last year, which it also bought from Aviva.
Last year Aviva Investors explored a sale of Quercus through JP Morgan but no deal was agreed.
The decision to sell the fund is part of Aviva’s strategy to refocus on a global platform by winding down and selling some of its specialist funds and expanding its US business. It has already sold several funds including the Mall Fund, the Beach Student Accommodation Fund and the Junction Unit Trust.
The Quercus Healthcare Fund was established in 1998 by Quintain and Aviva. In 2013 the fund was extended through non-core asset disposals.
In 2015 the fund disposed of more challenged assets in the portfolio, selling around 99 assets for £94.7m.
Colin Rees-Smith, director of healthcare at Savills, said: “Lone Star already owns healthcare and it will asset manage this portfolio. Quercus has many different tenants, some of which will need some TLC such as more beds and new facilities.”
Care home market boosted by government feeds promise
The government is to bring in a £7.20 per hour National Living Wage, boosting many workers’ pay, which operators had warned could close businesses. To offset the cost, the government agreed a rise in the amount it would pay for the care of publicly funded residents.
Mathieu Roland-Billecart, partner in real estate corporate finance at EY, said: “We have seen an improvement in buyers’ appetite over the past few months for secondary care homes, largely as a result of better-than-expected fee settlements with local authorities.
“This has given buyers more confidence that the homes can mitigate the impact of the National Living Wage and protect their profitability.”
The UK healthcare home market
- European care home investment volumes reached €2.6bn (£2.3bn) during the first half of 2016 according to Savills, 60% higher than the same period in 2016.
- In the UK in the first half of 2016, €244m of care homes transactions took place.
- Total investment activity in UK care homes this year is expected to be €1bn.
Other care home investments for sale
- London & Regional is selling a portfolio of 74 Larchwood Care homes, managed by HCMS, for around £160m through EY. The property company started marketing the portfolio in August last year, and discussions are ongoing with interested parties.
- Care home operator HC-One, which is owned by Court Cavendish, Formation Capital and Safanad, is selling around 70 care homes through CBRE for around £300m.
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