Update 27 July 2018
The wonderful weather here in Holland is continuing, and there are no signs that it is going to change in the short-term. Even with hot temperatures and summer vacations there are still interesting things happening in the market. In this latest update on private healthcare in the Netherlands we cover:
- European Care Residencies finally finds a buyer. What will be the next step in the consolidation of the Dutch elderly-care sector?
- Large and growing shortage of assisted-living apartments in the Netherlands. Opportunity for international elderly-care companies?
- Government likely to relax rules related to dividend payments for Dutch healthcare sector. How much will really change?
- Privately owned hospitals in trouble. Storm in a tea-cup?
- In our snapshot we give an overview of De Herbergier, the largest commercial provider of elderly care in the Dutch market.
European Care Residencies (ECR) finally finds a buyer
In our update of 24 May 2018, we explained the situation around ECR. The company has nine elderly care locations with a total of 458 apartments and 100 short-stay apartments for rehabilitation services. This makes ECR one of the larger commercial elderly care providers in the Dutch market. The company has received several official quality-related warnings from the Dutch healthcare authorities and seemed to be going through a financial rough patch and was in the process of selling real estate. A number of international players we talked to claimed to have looked at ECR but decided not to acquire it.
ECR has now been acquired by The Blueprint Group. The Blueprint Group is a Dutch investment company developing a number of healthcare related concepts, including SAOW in the elderly care sector (highlighted in the update of 18 December 2017). The deal will make The Blueprint Group a major player in the sector. However, they will have their hands full turning ECR around in the short term.
There are a limited number of Dutch elderly care organizations that can be seen as major national players. Who will be the next company to be snapped up in the ongoing consolidation of the sector?
Large and growing shortage of assisted living apartments in the Netherlands
A recent report by CBRE highlights a current shortage of 32.000 apartments specifically suited for the elderly in the Netherlands. They expect this shortage to grow to 52.000 in the next few years. The growing need for more apartments for the elderly is an issue throughout the country but is most pressing in the main urban areas (Amsterdam, Rotterdam, Utrecht).
CBRE suggests that elderly care providers should work closely with specialist investors to develop and manage new apartments with specific services for the elderly. Given the limited financial resources of most incumbent elderly care providers, a better solution will be for international companies combining a strong financial position, real estate experience and healthcare experience to use the opportunity to develop a Dutch business.
Changes coming to rules related to profits and dividends in the healthcare sector
Within certain sectors of the Dutch healthcare market it is forbidden to pay out profits / dividends. This policy has historical roots going back to the time when the government financed and took on all risks related to real estate investments for hospitals and organizations providing long-term intramural care. This has been changed, and all organizations now must finance their own real estate investments and bear the full risk of low capacity utilization. In addition, smart people have found several loop-holes that enable private for-profit organizations to work in the relevant sectors (examples are clinics offering specialized medical care) and make profits and distribute these to the owners.
The current government has therefore decided to carry out a thorough review of these rules with the goal of making it easier for healthcare organizations to attract (equity) investments. While the current rules have not stopped operators making and distributing profits in the healthcare sector, new and more logical rules will certainly make investments in the sector more attractive.
Private hospitals in financial problems
In the Dutch market there are three privately owned full-scale hospitals (in addition to a multitude of private specialized clinics). Two of these hospitals (MC Slotervaart in Amsterdam and MC Groep in Flevoland) are part of the DC Groep owned by Loe k Winter. Mr. Winter is well known health-care entrepreneur who also owns and activities in the elderly care sector (see snapshot) and the disabled care sector.
His hospitals have recently been in the news as they appear to be facing financial problems. The two hospitals have only recently published their 2016 accounts. These show both hospitals to have made a loss, and MC Groep having negative equity. In addition, the accounts show that the MC Groep would not be able to pay back a loan of €6 million to the ING bank.
Loek Winter and his right-hand man, Willem de Boer, claim that the late annual report is due to extra activities from by the accountant (EY), and that the loan has been paid back. Looking at the history of these two hospitals, the situation they were in when acquired by Loek Winter and recently announced actions to improve profitability it is very probable that the situation is under control. However, both organizations are definitely facing challenges and there are improvements that need to be carried out:
- The MC Groep consists of three locations in a sparsely populated (for the Netherlands) part of the country, and there is almost certainly work to be done on rationalizing the scale and scope of activities carried out in each location
- The hospital market in Amsterdam is very crowded and highly competitive and MC Slotervaart will probably need to move away from being a general hospital to a focus on certain key areas
Snapshot of a Dutch private sector healthcare operator: De Herbergier
The two hospitals in the previous piece are part of the DC Groep. In addition to hospitals, the DC Groep also owns organizations in the disabled care sector (Thomashuisen, profiled in an earlier update) and the elderly care sector. The elderly care organization, De Herbergier, is currently the largest commercial operator in the Netherlands with 41 locations and 653 apartments.
De Herbergier is a franchise organization where all the real estate is owned by other parties (often housing associations offering subsidized housing). Each location is run by a couple who live on-site and have the responsibility for all care-related activities, personnel, etc. A franchise fee of 4% of revenues is paid to the central organization which provides training, quality assurance, marketing and administrative services.
De Herbergier focuses on clients with dementia. A typical location has room for 15-16 clients. Care is financed by PGBs (personal care budgets). Payments for the apartments and the services vary between locations and depend on the size of the apartments. Every location has a few apartments that are affordable on a minimum pension. These typically cost €1.000/month. Other clients pay up to €2.000/month.