Southern Cross aims for rent deal

Marion Dakers
STRUGGLING care home operator Southern Cross is preparing for “hardball negotiations” with landlords to cut its massive rental bill, a person close to the firm said yesterday.

Southern Cross last week wrote to around a third of its landlords to request a switch from quarterly to monthly payments, after taking on KPMG’s Richard Fleming and Tim Bolot of turnaround specialist Bolt Partners to thrash out a better deal.

Most of the firm’s biggest landlords already accept monthly payment, paving the way for tough negotiations in the next few months, one person familiar with the firm said.

Rental payments cost the firm £250m a year, eating more than a quarter of the firm’s revenues, after the company sold a swathe of care homes to rent back on long leases before the recession.

The company said the 2.5 per cent average annual rent hikes under the leasing deals had become “unsustainable” earlier this month, sending its shares plunging 60 per cent.

Southern Cross warned that it was likely to breach debt covenants, though its banks, Barclays and Lloyds, remain “fully supportive”.

A company voluntary agreement, similar to that won by Fleming for JJB Sports last month, is thought to be off the agenda due to the large number of subsidiaries in the Southern Cross structure.
Southern Cross landlords reportedly include the Qatar Investment Authority, NHP, Lloyds Properties and property tycoon Nick Leslau’s Prestbury.

Southern Cross and its advisers KPMG and Bolt Partners all declined to comment yesterday. The firm’s shares closed at 15.5p on Friday, down from 130p a year ago.