Company Announcements

Company Name:-       Equinox (Eclipse 2006-1) plc

Headline:-                   Ashbourne Portfolio Whole Loan - Update on the Portfolio

Date:-                          23 Aug 2019

EQUINOX (ECLIPSE 2006-1) PLC

a public limited company incorporated in England and Wales with company registration number 5807977

(the "Issuer")

NOTICE TO THE HOLDERS OF

£329,000,000 Class A Commercial Mortgage Backed Floating Rate Notes due 2018
ISIN: XS0259279585

£18,500,000 Class B Commercial Mortgage Backed Floating Rate Notes due 2018
ISIN: XS0259280088

£19,500,000 Class C Commercial Mortgage Backed Floating Rate Notes due 2018
ISIN: XS0259280161

£22,500,000 Class D Commercial Mortgage Backed Floating Rate Notes due 2018
ISIN: XS0259280591

£8,000,000 Class E Commercial Mortgage Backed Floating Rate Notes due 2018
ISIN: XS0259280674

£3,840,000 Class F Commercial Mortgage Backed Floating Rate Notes due 2018
ISIN: XS0259280914

(together, the "Notes")

The Notes are admitted to the official list of the Irish Stock Exchange plc and to trading on its regulated market.

Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 (market abuse regulation) requires disclosure by or on behalf of the Issuer of any inside information concerning the Issuer.  The EU Market Abuse Regulation (596/2014) requires disclosure of inside information relating to the Issuer.

The Special Servicer has made the following information available to the Issuer.  The Issuer notes that it has not been involved in the preparation of this information and in accordance with normal practice, the Issuer expresses no opinion in respect of the information contained in this Notice. Furthermore, this Notice is issued without prejudice to any and all of the Issuer's rights under the Transaction Documents relating to the Notes, all of which are expressly reserved.

This Notice is solely directed to the holders of the Notes ("Noteholders") and should not be relied upon or used by any other person.

Please note that, in accordance with normal practice, neither the Trustee nor any of its advisors has been consulted or involved in the formulation or negotiation of the matters contemplated by this Notice or has verified the information contained in any part of this Notice.

Further neither the Trustee nor any of its advisors expresses any opinion as to the merits or purpose of the matters contemplated by this Notice or as to the action the Noteholders should take in relation to them. 

Neither the Trustee nor any of its advisors makes any representation regarding the accuracy, sufficiency, relevance or otherwise of any information contained in this Notice or otherwise disclosed or to be disclosed to the Noteholders in connection with the matters contemplated by this Notice or that all relevant information has been disclosed to Noteholders in this Notice or otherwise. Neither the Trustee nor any of its advisors accepts any liability in relation to the matters contemplated by this Notice. Accordingly, the Trustee urges Noteholders who are in any doubt as to the impact of the matters contemplated by this Notice to seek their own independent financial and/or legal advice.

Capitalised terms used but not defined in this Notice shall have the meanings given to them in the Prospectus dated 28 June 2006 issued by the Issuer (the "Prospectus").

Background

The Special Servicer refers Noteholders to the RIS announcement relating to the Issuer and released on the Irish Stock Exchange website on 19 February 2018 (the "19 February Announcement").

In the 19 February Announcement, the Special Servicer affirmed to Noteholders that, among other things, that a change in the Asset Manager had been necessary for the portfolio, with the appointment in December 2017 of the healthcare division of Grant Thornton UK LLP, to provide for a more care-sector focus speciality, to facilitate and evaluate an improvement in the performance of the UK-mainland portfolio, and also to assist in a future sale of the entire portfolio, either as a whole or via separate transactions.

Update on the Strategy for the Portfolio

As also disclosed in the 19 February Announcement, sales agents have been engaged by the PropCos to market for sale eight of the closed properties. Subsequently, agents have been engaged to market for sale a further two closed homes located in England and Scotland.

The Special Servicer refers Noteholders to the RIS announcement relating to the Issuer and released on the Irish Stock Exchange website on 21 May 2019 (the "21 May Announcement").

UK-mainland portfolio

Closed properties

Following the completion of the sale of one of the closed properties ("The Old Rectory" - see below for further details), as at the July Loan IPD, there were 9 closed properties remaining of which:

·    6 were under offer (Brookes House, Mountwood, The Squirrels, Warren Park, Wickwar and Withy Grove); and

·    3 (Copper Beeches, Heathmount and Silver Birches, situated on the same site) are currently being evaluated for possible alternative use including residential redevelopment

The Special Servicer confirms that during the most recent quarter to the July Loan IPD, the sale of the following closed property has been completed:

In light of the considerable costs being incurred in the vendor due diligence process for the future disposal of the entire Ashbourne portfolio and the level of income flowing from the operating businesses to the Propcos, the Borrower requested that some of the sale proceeds be retained and not distributed at the July IPD, thus ensuring that the Larch companies have sufficient funds to meet their future obligations and to ensure that the on-going realisation strategies of an orderly disposal of the portfolio that the directors of these companies are undertaking are not compromised

Having considered this request, the Special Servicer has agreed to it and consequently has arranged for a portion of the sale proceeds to be retained in a pledged account under the control of the Agent but subject to only the Special Servicer being permitted to direct the use of such funds.

In the event that such funds are not required in future, the Special Servicer will arrange for them to be included in an income waterfall for subsequent distribution to the Lenders.

In the period following the July Loan IPD, the sale of the following closed property has been completed:

As the sales processes for the remaining closed properties develop toward a conclusion, the Special Servicer will update noteholders accordingly.

Trading care homes

As disclosed in the 21 May Announcement, fourteen other operating care homes have been identified as non-core within the existing portfolio and are now being marketed for sale via Christie & Co.

The Special Servicer has chosen not to identify such assets so as not to detract from the future marketing for sale of such businesses, however it will update noteholders as the various disposal processes develop.

Since the 21 May Announcement, four offers have been accepted on the current trading homes that are being marketed for sale.

As the sales processes for the remaining trading care homes develop toward a conclusion, the Special Servicer will update noteholders accordingly.

Ultimately, it is the intention of the Special Servicer, working with the Asset Manager and the Operator to continue preparing batches of trading homes for future marketing for sale so that eventually the entire portfolio is sold and recoveries made for the Lenders.

Northern Ireland portfolio

As disclosed in the 21 May Announcement, a sale of the Northern Ireland business is being undertaken and the marketing process is currently underway.

Initial indicative bids have been submitted and the various bidders are now embarking on detailed due diligence with their advisors toward a final bid deadline of the 30^th August 2019.

The Special Servicer will update noteholders further in due course as matters develop.

Larchwood portfolio summary

Below is a summary of the number of care homes remaining in the Ashbourne portfolio, their status (e.g. Closed or Trading) and the number of properties currently being marketed for sale.

Trading Update

Similar to the 21 May Announcement, the Special Servicer requested of the Asset Manager and the Operators (Health Care Management Solutions and Care Circle), that updated trading information on the respective businesses be prepared for disclosure to noteholders.

Such data has now been prepared and verified by the Operators and this is outlined in the attached Schedule 1.

Priority of Payments

As reported in the 1 March Announcement, following the restructure & restatement of the Ashbourne Whole Loan in December 2013, a re-ordering of the priority of payments was concluded.

The Special Servicer considers that it is beneficial to Noteholders to re-affirm such priority of payments and to that end (and for ease of understanding), below is a table showing the existing priority of payments waterfall, under the current Material Non-Payment Default of the Ashbourne Portfolio Whole Loan including those items that rank senior to the repayment of the principal amount outstanding of the Priority A Principal Loan.

The following excerpt of the waterfall as set out in the November 2013 Amended and Restatement Facility Agreement provides a description of (and amounts due) to certain creditors and the order in which any amounts received from the Borrower are applied by the Agent or Security Trustee. Payments subject to the waterfall which rank below the categories set out in the excerpt are not expected to be recovered and so are not included.

All the data therein is as at 16 July 2019 and has been reviewed and confirmed by the Agent as correct.

For good order and ease of understanding, please note the following definitions:

Asset Management Fee - monthly fee due to the Asset Manager

Agent - The Royal Bank of Scotland PLC

Security Trustee - The Royal Bank of Scotland PLC

Priority A Lenders - Equinox (Eclipse 2006-1) PLC and Hercules (Eclipse 2006-4) PLC

Hedging Advance Lender - The Royal Bank of Scotland

LPI Hedging Advance Lender - The Royal Bank of Scotland

* - the claims denoted with an asterisk relate to funds that will flow to the Issuer waterfalls

FURTHER UPDATES

The Special Servicer continues to evaluate various options in relation to maximising recoveries under the Priority A Loan. The Special Servicer will continue to update the Issuer as the process develops.

Special Servicer Contact:

Link Asset Services (London) Limited
6^th Floor, 65 Gresham Street
London EC2V 7NQ
E-mail:  rob.hook@linkgroup.co.uk 

By:

Equinox (ECLIPSE 2006-1) plc
35 Great St Helen's
London EC3A 6AP
(in its capacity as Issuer)

cc:

BNY Mellon Corporate Trustee Services Limited
One Canada Square
London E14 5AL
(in its capacity as Trustee)

Date:  23 August 2019

Schedule 1

Larchwood Care Trading Update

Disclaimer

This interim management statement (the "Update Statement") has been prepared by Healthcare Management Solutions Limited ("HCMS") and Care Circle Management Limited ("Care Circle"), managers of the Operators of the Larchwood Care UK-mainland and Larchwood Care Northern Ireland portfolios respectively.

Larchwood Care is the "trading name" of the care home business that comprises the security for the Ashbourne Portfolio Loan.

Further information can be found on the Larchwood Care websites at:

http://www.larchwoodcare.co.uk/ (UK-mainland portfolio); and

http://www.larchwoodni.com/ (Northern Ireland portfolio)

Nothing in this Update Statement constitutes any financial product, investment, tax, accounting or legal advice or promotion in respect of or any inducement, invitation endorsement or offer to invest or deal in any assets, securities or financial instruments in any jurisdiction. Accordingly any person in receipt of this Update Statement should not rely on or use this Update Statement for any purpose, in particular trading any debt or securities issued by any entity.

This Update Statement may include certain projections and forward looking statements. Such projections and forward looking statements reflect various assumptions of Care Circle, HCMS or their advisers concerning future performance and are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of Care Circle and HCMS. Accordingly, there can be no assurance that such projections or forward looking statements will be realised. Actual results may vary from anticipated results and such variations may be material.

The statements included in this Update Statement have not been audited or independently verified and are management estimates. No responsibility or liability is or will be accepted by Care Circle, HCMS or any other party, or any of their respective officers, affiliates, advisers, agents and representatives, in relation to the accuracy or completeness of this Update Statement or any other written or oral information made available to any person in receipt of these materials and any such liability is expressly disclaimed.

Neither Care Circle, HCMS, nor any of its respective officers, affiliates, advisers, agents or representatives undertakes any obligation to update any of the information contained in this Update Statement or to correct any inaccuracies herein which may become apparent.

Larchwood (UK Mainland Portfolio)

Unaudited trading statement as at 30 June 2019

Introduction

Note that this trading statement should be read in conjunction with the previous trading updates provided in the Notices to Noteholders dated 14 June 2017, 15 November 2017, 19 February 2018, 30 May 2018, 31 August 2018, 18 December 2018, 1 March 2019 and 21 May 2019.

As detailed in the previous trading update, five homes closed during the quarter to 30 June 2019 being Brookes House, Copper Beeches, Mountwood, Wickwar and Withy Grove.  The results for these homes have been excluded from the results for the quarter to 30 June 2019 and have also been removed from prior periods so that all results in this update are presented on a like for like (LFL) basis.

Therefore, unless otherwise stated, the figures in this update only include the results for the 50 homes ('the Homes') that were open for the full year to 30 June 2019.  As such, they exclude the results from the Heathmount home that was closed in September 2018 together with the five homes that closed in the quarter to 30 June 2019.

Note that in addition to the five homes that were closed in the quarter to June 2019, fourteen other homes were placed onto the market for sale.  As these homes traded as normal for the full year in question, the results for these homes have been included in the figures presented.

As and when these homes are sold, the results from these homes will be excluded from the figures in the future updates with adjustments made to the LFL figures as required.

Summary Financial Performance - 3 months to June 2019

The trading results and main KPI's for the three months to June 2019 are summarised as follows:

Notes:
EBITDARM means earnings before Operator Central Costs, interest costs, tax, depreciation, amortisation, License Fee, the Management Fee, the Incentive Fee (if applicable)
The movements in occupancy and staff costs percentage are expressed on a percentage point basis.
 

Overall, EBITDARM for the quarter to 30 June 2019 represented:

-     An improvement of c.£1.13 million (c.44.6%) on the same quarter in 2018 driven by marginally higher occupancy, a c.9.3% year on year increase in average weekly fee and a reduction in staff costs of 2.1% percentage points

-     An increase of c.£330,000 (c.9.9%) on the quarter to 31 March 2019. Whilst like for like occupancy was down on the prior quarter, the impact of this was offset by a c.4.7% increase in average weekly fee in the quarter, an improvement in the staffing cost percentage and a reduction in the indirect costs in the quarter.

Occupancy

On a LFL basis excluding the homes that closed in the quarter, overall occupancy decreased by 35 clients in the quarter to June 2019.

Of this decrease, 22 occurred in April, 5 arose in May with the balance of 8 in June.

In a portfolio such as this that is heavily dependent upon public pay residents (c.70% public pay) the financial circumstances of the Local Authorities (LA's) becomes a major factor in the determination of occupancy. Increasingly, the term 'unmet need' is being used to describe a situation where LA's are simply refusing care packages in an effort to reduce their overall financial commitments.

In addition, LA's are seeking cheaper alternatives to full-time residential care such as low-intensity domiciliary care, however domiciliary care companies are increasingly feeling the pressure of delivering an acceptable level of service for the fees that LA's are prepared to pay. In the longer term there may be a swing back towards residential care.

The Larchwood portfolio is enjoying improving levels of compliance and, with the higher than normal levels of CAPEX being invested into the fabric of the buildings, is better placed to attract admissions.

In order to position the business to take a larger share of a diminishing market, significant effort is being made at home level with greater public-facing activities, and increased focus on maintaining and developing contacts within the local healthcare community.

In addition, the company is investing in updating the website, improving the profile of the business on various third-party sites and stimulating enquiries through the development of a social media presence.

Qualitatively, the ratings over the Larchwood portfolio have continued to improve, and whilst this is covered elsewhere in this update, the Carehome.co.uk ratings remain strong at 9.3 overall (9.2 per last update) and HowDidWeDo? feedback scores have risen from 9.0 to 9.1 since the last update.

Average Weekly Fees

Average weekly fees for the quarter to 30 June 2019 were £718 compared to the previous quarter average of £686.

The average weekly fee has shown an £32 per week improvement quarter on quarter and an improvement of £61 (9.3%) from the same quarter in 2018.

Fee increases for all service users generally occur on 1 April each year.  The status of the increases for 2019 is as follows:

-     English LA's - to date, 55 out of 141 LA's have communicated their rate increase; these rates apply to c.68% of Larchwood's LA residents. The average increase to date has been c.4.14% (Nursing 4.10% and Residential 4.19%) against the budget of 2.5%.  If the remaining LA's declare in line with this average, income of c.£0.2 million will be received in future periods but which relates to the quarter to June 2019

-     Scottish LA's - One rate covers the whole of Scotland and is agreed centrally.  In this regard, members of the providers group (Scottish Care) voted to accept an increase in the annual nursing fee of 3.65% and residential fee to 3.40%

Self-funder fee increases this year have averaged 7.5% (2018 - 7.5%), the number of clients paying top-ups has risen from 130 to 133 over the quarter to 30 June 2019, whilst in the same period there was an increase in the number of self-funders from 535 to 548.

Costs

The single largest cost for the Homes is payroll.  Overall staff costs increased c.3.9% quarter on quarter mainly driven by the increase in the National Living Wage on 1 April 2019 from £7.83 an hour to £8.21 an hour, an increase of c.4.9%.  This directly affects c.52% of Larchwood's workforce by number and increases the expectation of non-National Living Wage staff of receiving beyond inflation pay increases in order to maintain pay differentials between staff grades and groups.

LFL agency hours used reduced from an average of 4,016 per week in the March 2019 quarter to 3,256 in the June 2019 quarter, a reduction of c.18.9%.  The company has continued to employ a dedicated resource, based at the Wythall office, to work alongside the Homes and to assist with recruitment of staff. This continues to have a positive impact on agency use.  

Operating cost increased marginally in the quarter whilst indirect costs reduced quarter by quarter driven by lower utility costs.

Compliance

A summary of the compliance grades for the Homes (on a country-by-country basis) is detailed below:

England:

Scotland:

Wales:

Of the 42 English homes (which are regulated by the CQC), 78.6% are currently rated 'Outstanding' or 'Good'. This compares with a 'for profit' average of c.74% across the sector.

Whilst the overall compliance level of the English homes has remained consistent quarter on quarter, it is pleasing to note that the only 'Inadequate' home at the date of our last update has improved to a 'Requires Improvement'.  The recently published report for the home acknowledged the excellent progress that the home has made.

HCMS continue to hold regular planned meetings with the CQC national provider relationship team and Larchwood with CQC's Market Oversight team and these meetings continue to be positive about the continued improvements in compliance ratings across the English homes.

Inspections at two Scottish homes occurred in the quarter resulting in an improvement to the scoring in the table above.

No changes in ratings occurred in respect of the Welsh homes which both remain compliant.

Capex

During the quarter to June 2019, a total of c.£830,000 was invested into the portfolio. Based upon the average number of useable beds in the quarter (2,447) this equates to a run-rate of £1,356 per useable bed per annum (which is in line with industry norms).

The Capex detailed above was in addition to the £1,100 (annualised) per useable bed spent on planned and preventative maintenance and general repairs in the three months to 30 June 2019.

Closed Homes

Following the closure of Heathmount in September 2018 and Brookes House, Copper Beeches, Mountwood, Wickwar and Withy Grove in April/May 2019, the portfolio amounted to 50 open homes.

Summary Financial Performance - 12 months to June 2019

The trading results and main KPI's for the twelve months to June 2019 for the 50 Homes open in the year to 30 June 2019 (compared to the 12 months to June 2018) are summarised as follows:

Following the closure of the five homes in the quarter to June 2019, most of the loss-making homes have been removed from the trading portfolio.  Only two homes in the remaining 50 home portfolio were loss making in the twelve months to June 2019; across these two facilities, the gross annual EBITDARM loss was c.£46,000.

Excluding these loss-making homes together with the Closing Homes, the EBITDARM for the remaining 48 homes was c.£13.72 million for the twelve months to June 2019.

The 14 homes which are in the course of being marketed account for c.£3.64 million of the EBITDARM generated in the twelve months to 30 June 2019.

Overall Outlook

We are pleased with the progress being made in most areas of the business, however occupancy continues to prove a major challenge. In common with other operators in the public commissioning arena, there is caution being exercised by LA and NHS commissioners due to the cutback in budgets and the uncertain political position. This is affecting both referrals and admissions. There are early indications that the intense marketing activity taking place is beginning to have an impact and July saw a record number of telephone enquiries since October 2018, with an increase of ca12% across the group compared with a previous high. A specialist in social media marketing has been employed full time by HCMS and will concentrate on the Larchwood portfolio to improve both social media activities and will also develop and improve Larchwood's online presence.

Against a tougher approach by the three care home regulators, improvements in ratings are occurring and will continue to make progress.

Recruitment and retention of employees remains challenging with intense competition from the NHS for qualified nurses and experienced care staff who can offer better pay and conditions than our sector. We have improved our employment package, support and training offered to staff but we expect these tough conditions to continue.

The funding of social care remains uncertain with the Government green paper constantly delayed and the budgets of commissioners being increasingly stretched by inadequate central government grants and ever-increasing demand. With Brexit uncertainty and ever more unsettled politics, there is reason to expect tougher trading conditions.

Larchwood (Northern Ireland Portfolio)

Unaudited trading statement as at 30 June 2019

Introduction

Note that this trading statement should be read in conjunction with the previous trading updates provided in the Notices to Noteholders dated 14 June 2017, 15 November 2017, 19 February 2018, 30 May 2018, 31 August 2018, 18 December 2018, 1 March 2019 and 21 May 2019.

Unless otherwise stated, the figures in this update are presented on a Like For Like ('LFL') basis. Over the period covering the results presented below, seven homes ('the Homes') were open which is consistent with our previous updates.          

Summary Financial Performance - 3 months to June 2019

The trading results and main KPIs for the three months to June 2019 are summarised as follows:

Notes:
EBITDARM means earnings before Operator Central Costs, interest costs, tax, depreciation, amortisation, License Fee, the Management Fee, the Incentive Fee (if applicable)
The movements in occupancy and staff costs are expressed on a percentage points basis

Overall, EBITDARM for the quarter to 30 June 2019 represented an improvement of c.£30,000 (c.5.1%) on the same quarter in 2018 with higher occupancy levels and an increase of c.11.2% in the average weekly fee offsetting the 12.1% increase in staff costs.  This increase in average weekly fee was driven by the annual fee increases that were applied on 1 April 2019 (c.5%) together with the continuing shift towards more complex service users at higher fee rates.

EBITDARM generation for the quarter also represents a c.£110,000 (c.21.6%) improvement on the quarter to 31 March 2019 driven by increased occupancy together with a 7.3% increase in the average weekly fee quarter on quarter.  These revenue improvements offset an 8.8% increase in staff costs quarter on quarter impacted by the increase in the National Living Wage on 1 April and higher agency usage in the quarter.

Occupancy

Occupancy increased by 3 in the quarter ending on 304 clients as at 30 June.  No material fluctuations were seen throughout the quarter.           

The home with the largest improvement in occupancy in the quarter was Apple Blossom (an increase of 5) which was as a result of positive working relationships with the commissioners and a renewed contract agreement in relation to specialist placements.

As previously detailed, a planned restructure of care on the combined Glebe and Dunanney site has been undertaken to allow further expansion of the enhanced services in Glebe. It is therefore pleasing to note that, whilst occupancy for these two sites combined was broadly level in the quarter, the average weekly fee for these two homes was up c.13%, a significant element of which was driven by having taken on more complex care cases at these homes.

Occupancy at Kingsland continues to build following the refurbishment works at this home; since February 2019, occupancy has increased by 5.2 clients (12.7%) at this home.

We are pleased with the continued build of occupancy (which has continued post the quarter end); Culmore has demonstrated strong growth in the North West with competitor homes facing severe Regulatory pressure.

Since the end of the quarter, occupancy has continued to increase, standing at 311 clients, (96.6%) at the end of July 2019.

In the quarter, the average ratings for the homes on the CareHome.co.uk website was 9.2.

Average Weekly Fees

Average weekly fees for the quarter to 30 June 2019 were as follows:

·    Nursing £897 (Previous Quarter £825)

·    Residential £592 (Previous Quarter £565)

·    Overall £827 (Previous Quarter £771)

Overall, the average weekly fee increased 7.3% in the quarter to June 2019.

A significant part of this increase was driven by the annual fee increases which were applied on 1 April 2019 and which were as follows:

-     Nursing rates across all five Trust areas increased by 5.5%

-     Residential rates across all five Trust areas increased by 5.0%.

-     Self-funders broadly increased in line with the Trust increases above depending on the care category

As detailed above, a further driver of the quarter on quarter increase was the increase seen from the combined Glebe/Dunanney site which increased c.13% as a result of an increase in the enhanced care tariff in Dunanney through high cost specialist respite care clients and the admission of clients to the Glebe Brain Injury Unit on specialist placements.

The proportion of self-funded residents remains the same with approximately 11% of beds across the Group being self-funded.

Costs

Staff costs increased c.£180,000 (8.8%) on the previous quarter and represented 68.9% of revenue for the quarter.

A large element of the quarter on quarter increase was driven by the fact that the National Living Wage increased on 1 April 2019 from £7.83 an hour to £8.21 an hour, an increase of c.4.9%.  This directly affects c.50% of the workforce of the Homes and increases the expectation of non-National Living Wage staff of receiving beyond inflation pay increases.

Other drivers of the quarter on quarter increase include the length of the quarter (the quarter to June has one more day than the previous quarter) and the fact that Easter and the May Day holiday arose in the quarter to June.

During the quarter to June 2019, agency costs were c.£190,000 compared to the figure of £124,000 in the previous quarter

High agency costs were experienced at three of the Homes within the Group. Agency usage at Dunanney increased significantly during the quarter, which was brought about by a number of nurse resignations over a short period.  The loss of staff was exacerbated by a lack of availability for selection of suitably qualified staff. 

High agency costs also encountered at Glebe were mainly due to the difficulties in the recruitment of staff, as well as providing maternity cover on nights. Kingsland had made some improvement toward agency costs, however the lack of availability of suitably qualified staff for recruitment has been very evident. The continuation of high agency nurse pay rates on offer, remain an ongoing issue within the sector.

Since the beginning of the quarter, there has been a 54% reduction in nurse vacancies and a 28% reduction in care assistant posts throughout the group. Recruitment has improved significantly during this period, with more nurse referrals having come from recruitment agencies as opposed to direct applications. The resulting reduction in agency costs should be visible at the end of the next quarter, allowing for notice periods, Access NI checks and inductions periods to be completed.

Operating Costs were c.£6.53 per resident day in the quarter to June 2019 (a 5% increase on the quarter to March 2019).

Overheads were lower than the previous quarter driven by lower utility costs.

Compliance and Quality

Three inspections took place in the period by the Regulation and Quality Improvement Authority (RQIA).

The Care Inspection at Apple Blossom registered a pleasing report outcome with no areas for improvement noted by the inspector and all previous areas assessed as met.

The Care Inspection at Glebe under the tenure of the new home manager saw 5 areas for improvement noted in the areas of induction record, activities, the dining experience, environmental improvements and locking of a maintenance store.  Some of these issues were addressed on the day of the inspection and others were in relation to the environment and activities which were completed by the return of the Quality Improvement Plan.

The final inspection led by the Care team from the RQIA was a new style of integrated inspection approach, never experienced before. This saw all 4 divisions of the inspectorate examining Care, Pharmacy, Estates and Finance over a two-day thorough assessment period. The resulting Quality Improvement Plan was a pleasing result, which culminated in only 6 areas for improvements, across all four service areas.

Capex

In the quarter to June 2019, c.£260,000 was spent on Capex.

Of this spend, c.£149,000 related to the plumbing re-pipe work at Melmount Manor.  The first phase of these works was completed on time in January 2019 and in line with the agreed quote for the work.

The second phase of the work commenced in March 2019 and should be completed within the next two to three months. The cost of the second phase works will substantially be covered by an insurance claim, the funds from which have already been received. 

Excluding the works at Melmount Manor, the largest spend was Kingsland where Capex of c.£45,000 was incurred in respect of the interior of the building.  These works are being completed in the quarter to September 2019 with the upgrade of a number of the bathrooms at the home.

The budget agreed at the start of the year provided capex of £1,334 per bed for the year excluding the amount provided for the plumbing re-pipe work at Melmount Manor. 

Summary Financial Performance - 12 months to June 2019

The trading results and main KPI's for the twelve months to June 2019 for the Homes (compared to the twelve months to March 2019) are summarised as follows:

The EBITDARM generation in the twelve months to June 2019 represents 17.4% of turnover (down from 17.6% in the twelve months to March 2019).  On a home-by-home basis, EBITDARM generation ranged from 7.3% to 24.6% in the twelve months to June 2019.

Note that excluded from the figures within this trading update is provision for any recompense for the three rooms that have been out of action at Melmount Manor since the piping leaks were discovered at the home (September 2017).  The Business Interruption Claim in respect of this issue has now been settled with insurers who agreed a claim of c.£0.1 million per annum.  This settlement is not included in the figures detailed in this update and thus will increase the annual EBITDARM run rate detailed above by c.£0.1 million.

Overall Outlook

Occupancy is increasing gradually but the transition of the Brain Injury Unit at Glebe to the upper floor is taking time to bed in. The new videos and imagery recently displayed on the website has been a factor in the occupancy uplift. The full refurbishment at Kingsland has impacted positively on the number of enquiries and occupancy in the home.

Recruitment is an ongoing focus as there has been higher than anticipated agency usage recently with, maternity, annual leave, sickness and availability of suitably skilled nurses remaining in short supply. Relationships have been built with new recruitment agencies and a number of candidates have been supplied through these channels. Communication forums around the Homes are working well and engagement in this process has been positive.

The uncertainty of Brexit and the lack of government in Northern Ireland remains an issue.

Regulatory focus by commissioners has increased considerably in each of the Homes within the Group over the last three to six months which we expect to continue. Each of the commissioning Trusts are assessing value for money for their client versus payable rate. This is in addition to the regulatory focus of the RQIA and the normal ongoing inspections.

This announcement has been issued through the Companies Announcement Service of Euronext Dublin.