Why does the care home sector matter? According to www.carehome.co.uk there are 16,726 care homes in the UK looking after nearly 500,000 residents and employing approximately 750,000 people. It matters because we are all likely to experience this sector at some stage in our lives either directly or through family members.

Christie & Co have just issued their care market review for 2024 (“the Review”) which includes positive news that “just as economic and political conditions stabilise, there is a renewed appetite emerging for good quality care home investment opportunities.” The Review adds that “Healthcare remains a highly attractive asset class to investors due to the strong needs-driven underpin and defensive characteristics of the sector.”

The sector will be watching the budget on Wednesday with a keen eye to see whether additional funding will be given to local authorities, whether there will be an increase to employer National Insurance contributions, or whether red tape will be reduced to encourage the building of new care homes. 

At FRP, we are well-placed to help explore new investment opportunities via our Financial Advisory (transaction and valuation services) and Corporate Finance teams or to offer refinancing and restructuring advice. From my recent experience of trading care homes in England and Wales there is no doubt that the care home sector is different to any other sector I deal with. Yes, financials are important, but they can paint a false picture if there are serious underlying concerns or failings with the quality of care being provided.

When I talk to lenders or anyone considering an investment opportunity in this sector, I always highlight the following:

Five key non-financial stakeholder considerations

The registered manager – An established and experienced registered manager is likely to create stability in a home and loyalty from staff. However, the flip side is whether they may be nearing retirement - is there any succession planning in place - and understandably after years of service, are there signs of an inertia to an ever-changing regulatory environment?

Staff turnover – The Review states “there is a chronic shortage of UK-based staff in this sector” i.e. if key staff are leaving a home there is no quick fix available. Homes are wrestling with absorbing the increase in the National Living Wage, minimising agency staff and the use of the UK sponsorship licence. However, volatility in the above ratios not only has a cost impact but also a quality-of-care impact i.e. residents will be distressed if no bond is formed with carers and more errors are likely to occur without an integral knowledge of a resident’s specific needs.

Local authorities and the NHS – Safeguarding policies and procedures are put in place to protect the well-being of residents and keep them safe. If the number and nature of safeguardings being reported become a concern, the authorities have the necessary tools to intervene. This may lead to an embargo swiftly being placed on the home or, worst case, the home ultimately being closed. 

CQC – Lenders / investors can get a nasty surprise when a Care Quality Commission (CQC) or CIW in Wales, visit results in the home’s rating being downgraded to “Requires Improvement” or “Inadequate”. Suddenly the home will be on the back foot from both a financial (fall in occupancy and fee rates) and regulatory perspective as it formulates an “action plan” to address the concerns raised. 

Relatives and residents – As well as reviewing a log of complaints / minutes of relatives’ meetings, I would always recommend visiting the home. Do the carpets smell? Do the lifts work? Is there an activities coordinator? Are staff engaging with residents? Does the home have the required compliance certificates? Very quickly you should be able to assess whether there is underinvestment and an underlying low morale among residents and relatives. You should ask yourself the question would you be happy placing your relative there? If such issues persist, without improvement, Councils or the NHS may ultimately decide to pull their residents out of a home which could immediately jeopardise the home’s financial viability. 

By far the biggest lesson I have learned from this sector is the incredible work and sacrifice undertaken by staff in the most challenging of conditions for minimal pay. This work ensures residents continue to receive the best care while being treated with dignity and respect. At present, the current system isn’t working which in turn is breaking the resolve of these key individuals and driving them out of the sector. 

My hope with any new legislation introduced is that these individuals become the focal point, so not only are they supported but that individuals of a similar ilk are also actively attracted to the sector and rewarded appropriately. In a society with an ageing demographic, it is imperative that the current trend is reversed as soon as possible. 

Although the sector is challenging, the opportunities are out there to run profitable and cash generative care homes. Lenders and investors just need to understand that, in this particular sector, the relationship between strong financials and a high quality of care is truly binary.