AR: You have probably been to a lot of homes that are 60 beds, which seems to be a common size. We find here that we can operate bigger homes. It’s operationally intensive to run a home this size, there is a lot of ground to cover and there are more residents to care for, but we have got ourselves up that learning curve, and those extra two dozen units, when you are full, really do drive the yield that investors are looking for.
When I am speaking to the land acquisition team about a site anywhere in the South-East, the first thing I will ask is for an appraisal of how many units we can locate on that site. We know that homes with around 90 units will deliver the yield we need from a financial point of view.
CHP: I don’t think it is comparing apples with apples when you compare a 60 bed care home with a 90 unit assisted living home like yours.
AR: You are sort of right, but we have a similar complement of skills within our homes. We have carers, we have experienced nurses, we have people with a lot of experience caring for dementia residents. So, when you walk into a 60 bed nursing / dementia home, you will find residents with similar health issues to what you will find in our homes.
We have just conducted some interesting research across our homes. The average age is mid-80s, predominately single, female, affluent people. They generally have a lot of equity to release in their properties; they are looking for a lifestyle experience, a home-from-home experience, while knowing that all the care is there if it is needed. That is the model.
CHP: I know you have a range of options here in terms of accommodation and care packages, but can you give me some insight into the fees?
AR: It varies from location-to-location, but as a guide, the average cost of a studio apartment across all of our South-East homes is around £1,200 per week. Care packages are paid for on top, depending on individual care needs.
CHP: Ordinarily when I speak to care home operators, the conversation inevitably turns to the squeeze on funding from local authorities and CCGs. You don’t appear to be particularly concerned with that.
AR: We are top end of the market. We are in prime South-East locations. It is predominantly a private pay resident base.
CHP: It feels like you are not in the same market, not in the same ecosystem, as thousands of care homes up and down the country surviving on £550 per week fees paid by local authorities?
AR: I take your point however we do have some of the same concerns. For example, if you look at the National Living Wage and the impact it will have on the sector, it will have an impact on us, not in the South-East, but in the peripheral locations. We are mindful of that.
CHP: The Living Wage has no impact in the South-East because you are already paying above those rates?
AR: Yes, we have to in order to attract the right people. But, like everybody else, we also have to preserve differentials as you go up the pay grades. That is a cost to us, but it is something that we have modelled out to 2020.
I was reading an article the other day that described how, if you are a LA funded 30-bed care home in the wrong part of the country, it is probably going to become financially unviable for you to trade post-NLW. And there are probably 100,000 beds that fit that profile around the country out of a total of 450,000. That is a huge concern.
Plus you have some of the biggest operators looking at their balance sheets and realising that they need to restructure. They have to service a lot of debt and I think that from a cash flow point of view, after they have to increase wages in April, you are likely to see restructuring and a drop in the number of beds there too.
You have a situation where the demographics are going North but the supply is going South. That needs to be addressed, but every Government over the past 20 years has parked the issue. The Government has to create a climate where it is more compelling to invest, land is easier to acquire, the planning process isn’t as penal, so, we can get stock away at various price points. Plus you have the issue of local authority-funded residents, and funding over the past five years has fallen by I think 17%. Nothing about that equation makes sense.
CHP: When you read about the funding crisis hitting parts of the industry, do you feel like you are part of the solution or even part of that industry?