As care home operator Southern Cross comes close to collapse, here is a look at the parties facing the blame for the company's problems.
THE MANAGEMENT?
Southern Cross's woes are down to management past and present. The care home provider has been in control of its own destiny throughout the process, defining the standard of care it provides and the financial transactions it enters into.
For years the company has operated with empty beds – a direct result of a poor reputation in the industry. Despite improvements in care the company is still running at just 86pc of capacity. This figure has nothing to do with high rents.
For years the company has been relying on state-funded residents. It failed to spot the inevitable belt-tightening from central government and has not moved fast enough to attract privately-funded residents. The company recently complained that local authority-funded admissions had fallen by 15pc over the past six months.
It has also bemoaned a squeeze on the rates councils are prepared to pay. All of this should have been forecast and factored in months, if not years ago.
For years the company has been relying on state-funded residents. It failed to spot the inevitable belt-tightening from central government and has not moved fast enough to attract privately-funded residents. The company recently complained that local authority-funded admissions had fallen by 15pc over the past six months.
It has also bemoaned a squeeze on the rates councils are prepared to pay. All of this should have been forecast and factored in months, if not years ago.
From the time Southern Cross carried out the sale and leaseback deals on its properties the rental payments have been predetermined. Unlike the wider economic conditions there have been no shocks or unpleasant surprises in the rental bill.
Southern Cross's rents are in line with the industry norm. To make a profit the company doesn't need to be paying less rent. It needs to be earning more money. Filling up empty beds would be a start.
THE PRIVATE EQUITY OWNERS?
Egged on by private equity backers and property speculators, Southern Cross has been milked for years.
US private equity firm Blackstone may claim it is "inaccurate and misleading" to criticise its former ownership of the company but the company cannot ignore the numbers.
During its three-year stewardship of Southern Cross Blackstone banked profits of roughly £1bn. It also put the company on a path that would lead to huge rental liabilities.
By selling off its propertiesf Blackstone pawned its future stability for short-term growth. It was a business model predicated on steadily rising property prices and largesse from the public sector purse.
By splitting the ownership of the company's property from its operating business Southern Cross saddled itself with a rental bill nearing £250m per year – roughly a quarter of the company's turnover.
Worse than this, the rents rise 2.5pc per year irrespective of what is happening in the property market or wider economy.
The financial mechanism would have been highly enticing when the properties were first sold, helping to inflate their price. But years later it is choking the life out of the companies.
The people who put these deals together, the financiers, the landlords and previous managements were no mugs. They knew what there were doing and were highly rewarded for the work, work that has put the wellbeing of 30,000 elderly and vulnerable people at risk.
Source http://www.telegraph.co.uk/
Egged on by private equity backers and property speculators, Southern Cross has been milked for years.
US private equity firm Blackstone may claim it is "inaccurate and misleading" to criticise its former ownership of the company but the company cannot ignore the numbers.
During its three-year stewardship of Southern Cross Blackstone banked profits of roughly £1bn. It also put the company on a path that would lead to huge rental liabilities.
By selling off its propertiesf Blackstone pawned its future stability for short-term growth. It was a business model predicated on steadily rising property prices and largesse from the public sector purse.
By splitting the ownership of the company's property from its operating business Southern Cross saddled itself with a rental bill nearing £250m per year – roughly a quarter of the company's turnover.
Worse than this, the rents rise 2.5pc per year irrespective of what is happening in the property market or wider economy.
The financial mechanism would have been highly enticing when the properties were first sold, helping to inflate their price. But years later it is choking the life out of the companies.
The people who put these deals together, the financiers, the landlords and previous managements were no mugs. They knew what there were doing and were highly rewarded for the work, work that has put the wellbeing of 30,000 elderly and vulnerable people at risk.
Source http://www.telegraph.co.uk/
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