Southern Cross tells landlords to accept rent cut or leave

Troubled care home operator Southern Cross has issued an ultimatum to its landlords to accept a four-month 30% cut in rental payments, in what commentators described as a “declaration of war”.

The ailing operator said it would “defer an aggregate of 30% of its monthly cash rental payments from 1 June to 30 September 2011” to allow the company and its key shareholders to agree to a restructuring deal.

The company has already said that its rent bills are unsustainable, given falls in revenue from councils, prompting fears that it will go into administration and put at risk the future care of its 31,000 residents.

The company said yesterday that it “remains confident that a critical mass of landlords will support [the deal]”, but those that did not want to take part in longer-term restructuring of Southern Cross could “review other options”.

“It is in everyone’s interests if this is as part of a larger, managed and orderly process,” said chairman Christopher Fisher.

“The objective will be to emerge with a stable and sustainable business model for the continuing care of our residents.”

However, Paul Saper, director of health care analysts LCS International Consulting, said this amounted to a “declaration of war” on landlords.

He believed that some landlords would choose to take back their homes and run them themselves rather than accept the rent reduction.

“We can expect that this isn’t going to be universally accepted by the landlords. It’s reasonable to anticipate that all the landlords will consult with their lawyers,” he said.

This comes after the company and its landlords, including fellow operator Four Seasons Healthcare and NHP Holdings, had held talks to reach a deal on a rent rebate on which there appears to have been no agreement.

Last month, the company revealed it made a loss before tax and other charges of £21.1m in the six months to 31 March 2011, compared with a £1.6m loss in the same period in 2009-10. In addition, it had to write off £293m of assets because of its financial position, while net debts at the company had doubled to £14.4m as of 31 March from £7.3m at the end of September 2010.

On Saturday, the Association of Directors of Adult Social Services called for calm. “As councils buying care from Southern Cross, we are willing to work with all parties to support the recovery of the business,” said Adass president Peter Hay.

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