Impact Healthcare REIT (IHR) has transferred the leases of care homes let to Silverline Group, which has not paid its rent due for the first two quarters of this year, to an affiliate of an existing tenant of the company.
IHR has transferred the leases of Silverline, which let seven homes and accounted for 3.4% (£1.6m) of the company’s total annual contracted rent, to Melrose Holdings Limited. It has also received £0.4m from Silverline’s rent deposits and has continued to receive 100% of rent payments due from each of its other tenants.
Melrose is a new company and wholly-owned by Mahesh Patel, a managing partner of Impact Health Parteners (IHR’s investment manager). Melrose will benefit from a service agreement with Minster Care Group Limited, under which Minster will support the turnaround of the Silverline Homes. IHR said that Minster has a long and effective track record of taking on and improving under-performing care homes.
Patel helped found and grow Minster. Over his career he built up and sold three healthcare-related businesses, Highclear and Kingsclear (focused on residential care for the elderly) and a supported living business, Independent Living.
IHR has agreed to provide a £1.6m loan facility for up to three years to Melrose to assist in the funding of Silverline’s overdue liabilities to third parties other than the group and to fund remedial capital expenditure to bring the operational and financial performance of the homes up to the required standards. This facility will have an interest rate of 8.0% per annum on drawn funds and will be repaid in priority to rent from surplus funds in Melrose.
In the initial phase of the operational turnaround of these care homes, the existing leases will be temporarily amended to replace the fixed rent with a variable rent, payable once the loan has been repaid. The lease variations will also entitle Melrose to pay Minster a fixed management fee of £1,000 per registered bed in the homes (approximately £400,000 per annum plus VAT) to cover the direct costs it will incur in overseeing the turnaround, payable only from any surplus cash generated by the seven homes. Any surplus cash after the management fee, will first be used to repay the loan facility and accrued interest to IHR and, once the loan is repaid, will be paid as rent to IHR.
The rental default from Silverline and the new arrangements agreed with Melrose will temporarily reduce the level of rent received by the group, with the board anticipating the total reduction versus the company’s original budget for 2023 to amount to around £1m.
IHR : Impact Healthcare REIT transfers leases of struggling tenant to new company set up by partner in investment manager