The Investment Column: Another side to nursing homes

It is ironic that while Care First is fighting for its life, AIM- quoted Nursing Home Properties, which yesterday announced a pounds 38m, four for five fund-raising, is talking of recovery in the UK care home market as funding pressures within local authorities ease.

NHP, which buys homes and leases them back to operators on long, high- margin terms should be a big winner. Sale and leaseback arrangements, the norm in the US, are fast gaining popularity here.

UK nursing home operators are recognising that they are better at running homes than negotiating property deals. Capital costs of building are huge and mistakes costly. With banks restricting lending to around 30 per cent of capital costs, NHP offers an attractive alternative, providing 100 per cent of the finance.

Demand among the huge number of unquoted medium-sized nursing homes here which cannot easily raise money elsewhere is accelerating. NHP already has pounds 100m of property deals in the first six months of 1998 compared to pounds 92m in the whole of 1997 and a total property base of pounds 170m.

The UK sale and leaseback market, currently worth over pounds 450m, is growing at some pounds 300m a year and with only one other real competitor in the UK, Principal Healthcare, NHP expects get around half the contracts.

Floated at 100p in February 1995, NHP has not been a stunning investment, underperforming the market by 6 per cent. However its shares rose 5p to 129.5p, a premium to the 125p a share placing price and a 6 per cent premium to the pre-issue net asset value of 144p.

As well as good growth prospects, investors get a nice dividend yield - around 7 per cent assuming current forecasts of an 8.6p dividend are raised.

As well as a move to the main market, which will increase NHP's exposure, a new joint venture gives Lend Lease, the pounds 7bn Australian giant, the right to a 15 per cent stake. Given Meditrust's 20 per cent stake, that could signal an eventual bid battle for NHP. Investors should take up the offer.