Westminster trust to spark sale and leaseback boom

Westminster Health Care's decision to set up a property investment trust could start a boom in sale and leasebacks financing in the UK nursing home sector. Sameena Ahmad looks at Tamaris, a rare champion of sale and leaseback deals in Britain, whose example persuaded Westminster to make its move.

Westminster's property trust, Atlantic Healthcare - jointly owned with US care home company Holiday Retirement - is being kick-started by Tamaris. Tamaris is buying 12 nursing homes from Westminster for pounds 20m and selling five of the homes into the trust and immediately leasing them back.

That Westminster Health Care, the UK's second biggest nursing home group capitalised at more than pounds 250m, is turning to Tamaris, valued at pounds 15m, illustrates the potential of sale and leaseback financing in the UK.

Compared with the US, where the nursing home industry is largely funded through sale and leaseback (S&L), Tamaris is the only UK company to have extensively used S&L to grow. Most other UK nursing home operators own and manage their homes and have needed huge capital injections at a time when government funding constraints held back their profits. With no large capital requirements, Tamaris has grown fast and profitably - from 234 beds back in 1994 to 2,000 by March this year. Buying the Westminster homes, together with a deal with Omega, has doubled that to almost 5,000 beds.

Barbara-Ann Maxwell, Tamaris' chief executive said its use of S&L meant it could prosper in a tough sector. "We don't see ourselves as property specialists. We are operators."

She pointed out that with interest rates rising and nursing home companies forced to depreciate assets, the terms of S&L financing were easily as good as borrowing from banks. "We get as good a deal as banks could give us and we also have control over our costs," she says. "There is a finite potential profit per home. Cost control is vital."

Paul Saper, of healthcare analysts Laing & Buisson, said the Tamaris- Westminster deal benefited both parties. "Westminster gets better quality earnings from a reliable rental income stream and the opportunity to improve returns by investing the money in fast-growing areas like psychiatry. Little Tamaris finishes up with a bunch of nice new homes to operate and another key relationship to help it further expand."