locutus
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Post by locutus on Nov 29, 2016 12:45:40 GMT
fundingsecure please can you shed some light on the valuation for this loan. This loan has been valued on multiples of profit instead of a strict bricks and mortar basis. If valuing on multiples of profit, why are the real running costs from the company currently managing the care home not being used as opposed to guesses from a valuer with no real experience in the industry? In addition, the figures on the last page raise some questions. Why are wages not higher as this seems very low? How many staff does this pay for? Why was it capitalised at 5 years? How do we get from the figures in L.04 to L.05? How about costs for catering staff, food and cleaning staff?
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Post by fundingsecure on Nov 30, 2016 10:12:12 GMT
In order to clarify the valuation, an updated valuation has now been uploaded - with an appendix from the surveyor added.
The valuation of £2.5m is a bricks and mortar valuation as it is based on the likely passing rent to the care provider. It is not based on the profits of the business. These were laid out in the valuation report so as to demonstrate the reasonableness of the rent.
Further, he believes a yield of 10% (10 years) to be on the conservative side and believes a yield of 7.5% to be more appropriate. This would put the valuation a £3m, excluding the goodwill of the business. We will, however, stay with the more conservative value when calculating the LTV.
FundingSecure
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baldpate
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Post by baldpate on Nov 30, 2016 12:01:02 GMT
The update provided by the valuer entirely misses the point.
The whole edifice of the valuation rests on the shaky foundation of the bottom-line 'profit' figure of £858K, given in section L.03. This 'profit' figure is then used as the basis for various capitalization multipliers (for which, BTW, no justification is given, for example by comparison with real-world examples - it seems to be a case of "trust me, I'm a valuer").
But that baseline figure £858K on turnover of £1,041K is surely wildely unrealistic. Care homes, run properly and on a sustainable basis (which this one clearly has not been), simply do not make a return of around 85%! From what I have read, a profit margin of 30%-35% would be nearer the mark. If we are generous and use a margin of 35% instead of 85%, we would end up, at L.05, with a rent of £106K pa and a valuation (using the original 'conservative' x10 multiplier) of £1.06M.
My point is that the whole wobbly structure of this valuation is based on a fantasy figure of £858K
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max
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Post by max on Nov 30, 2016 20:07:50 GMT
The standards of care reported by the Care Quality Commission inspecting the business perhaps are evidence that extraordinary returns are achievable if one keeps costs to the bone 😆
Another interesting assumption in the evaluation report is full occupancy. The CQC reported only 24 out of 26 beds were occupied during its inspection.
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fp
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Post by fp on Nov 30, 2016 20:13:14 GMT
The standards of care reported by the Care Quality Commission inspecting the business perhaps are evidence that extraordinary returns are achievable if one keeps costs to the bone 😆 Another interesting assumption in the evaluation report is full occupancy. The CQC reported only 24 out of 26 beds were occupied during its inspection. Makes for interesting reading doesn't it! 
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09dolphin
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Post by 09dolphin on Nov 30, 2016 21:41:39 GMT
Having experience of investing in the care home sector I would advise caution for anyone thinking of investing in this sector. Yes profits can be made but there are now huge risks IMHO because of issues with funding by local authorities who are looking to cut costs. There are relatively few "self funders" in the system which previously helped to make this sector profitable. The majority of clients are now funded by local authorities at a level that doesn't always cover costs.
However if the care home is to be converted to apartments this is a totally different proposition.
I will not invest because there now seem to be too many risks in the care home sector and I would not want to be associated with a company who may change the use of the building (to private apartments) and therefore basically evict people from the place they thought was their home until they died.
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baldpate
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Post by baldpate on Dec 2, 2016 17:14:54 GMT
I didn't get the email, as I had no money in this auction (as might be gathered from my earlier comment about the valuation!). But I looked at the cancelled loan listing, and the loan update comment specifically says "We have decided to obtain a fresh valuation report from a valuer experienced with care homes." (MY BOLD).
I take this as a tacit acceptance that the valuer they were previously using didn't do a very convincing job. What's the betting though, that the new valuer still comes up with a figure that justifies the loan? I shall watch with interest to see how this gets spun the second time round.
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fp
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Post by fp on Dec 2, 2016 20:49:09 GMT
I didn't get the email, as I had no money in this auction (as might be gathered from my earlier comment about the valuation!). But I looked at the cancelled loan listing, and the loan update comment specifically says "We have decided to obtain a fresh valuation report from a valuer experienced with care homes." (MY BOLD). I take this as a tacit acceptance that the valuer they were previously using didn't do a very convincing job. What's the betting though, that the new valuer still comes up with a figure that justifies the loan? I shall watch with interest to see how this gets spun the second time round. I'm sure there was at least one email to them pointing this out, glad they took notice
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