Tax breaks turn nursing homes into big money-spinners

 

Elderly care may be big business, but are the investors the only ones to benefit, asks Barry O'Halloran

Nursing homes and retirement villages are beginning to proliferate around the country the way that hotels and golf courses did in the 1990s. In 1998 the Government introduced tax breaks for building or refurbishing private nursing homes registered with the Health Service Executive (HSE), which regulates the sector, and investors have been taking advantage with plenty of enthusiasm.

Accountant Brian McEnery of Horwath Bastow Charleton, who advises the Irish Nursing Home Organisation (INHO), says that by the end of October last year, there were 427 private nursing homes, with 16,461 beds in the Republic.

In 1997, the year before the tax breaks were introduced, the total stock of private nursing home beds was 10,000. "It's growing at the rate of about 10 per cent a year," he says.

Not surprisingly, a number of groups with multiple properties are emerging from this raft of development. One of the biggest is Mowlam Healthcare, which has 10 properties in Limerick, Galway, Dublin, Kilkenny, the northwest and the midlands.

Four years ago, Mowlam had three properties. The group is the developer and the operator of each of its facilities. But each of the homes are paid for and owned by groups of private investors brought together by Mowlam, who put up the cash to develop the homes in return for the tax break.

The group then leases the properties from them, and basically buys out the investors after 10 years - the period for which they have to keep their money locked into the project to qualify for the tax break.

Mowlam is the group behind the retirement village that the Minister for Finance Brian Cowen recently opened in Moate, Co Westmeath. The development had a reported price tag of €12 million. Figures like that are not reflected in its balance sheet, presumably because the group leases the properties and does not own them.

At the end of 2003 (the most recent date for which figures are available) Mowlam Healthcare Ltd had €1.1 million in assets. But the profit and loss account for that year shows it had a pretax deficit of over €510,000 and absorbed losses for the year of €472,000. It made a profit of €10,300 in 2002.

In 2003 its turnover almost doubled from €2.8 million to €4.7 million, reflecting the rate at which the business has been expanding.

It seems keen to continue that expansion: its website carries an ad urging people with suitable sites for nursing homes, or even nursing homes to sell, to ring Mowlam's Limerick city headquarters.

The main figures behind Mowlam are Limerick businessmen John Shee and Joseph Hanrahan. They control 1.3 million of the group's 1.577 million issued shares - over 80 per cent of the company - through another vehicle, Cracken Properties (Holdings) Ltd, over which they share 100 per cent control.

Both men are active in a range of other businesses, largely connected with property development, including holiday homes, which also benefit from tax breaks, and have made a crossover from that to private nursing homes.

This seems to be a common thread with many of the backers of new nursing homes. Most of them have other business interests, a high proportion of which are connected with property development.

In fact, one company, The Village Nursing Care Ltd, which is in the process of developing a retirement village in the Galway area, states that its principal object is the "development and selling of real estate".

This project is the brainchild of Dr Hussain Bhatti, who is already associated with a large alternative medicine business and clinic in the west of Ireland. Dr Bhatti is also connected with a nursing home in Oranmore, Co Galway, which had over €500,000 in assets in 2003.

Similarly, one of the companies behind Golden Meadows, a chain of retirement villages that is under development, describes its principal object as real estate management.

Golden Meadows has two operations up and running, one in Dungarvan, Co Waterford and the other near Clonakilty in west Cork. The Dungarvan facility was opened last May and took an investment of €14 million. The company is planning more and has been recruiting heavily in the past few weeks.

A Cork couple, Danny and Kathleen Lordan, are the people behind Golden Meadows. They also have a number of other business interests, including Soilse Holographics, a Clonakilty-based company specialising in developing hologram-based security systems. (Holograms are light-based patterns used for security and authentication on banknotes and cash and credit cards.) The West Cork Enterprise Board invested €30,000 in Soilse in 2002.

It's clear that many of those involved regard private nursing homes as the latest in a line of tax incentive-based investments, like hotels, holiday homes and inner city development. McEnery acknowledges that this does not always produce the desired result. Leas Cross, the facility which an RTÉ Prime Time programme exposed for its abusive treatment of residents, was a post-1997 development.

It's not just the residents of these facilities who can be unhappy. Earlier this month, nurses and staff at Tullybeg Retirement Village in Co Offaly staged a sit-in protest over the failure of the owners to pay wages. Some reports blamed the HSE for failing to support the home, which had offered to bail out Tullamore General Hospital during the beds crisis late last year. Consequently, it could not attract enough clients to become profitable.

All private developments are exposed to the risk that they will not attract enough people to be viable in the long term.

However, private nursing homes are not necessarily a byword for crises or bad treatment.

According to McEnery, First Care, another recent arrival that has developed as a chain with four properties in Dublin, sets the standards bar very high. "They are very strong in the area of standards, and would be very much the leaders in that respect," he says. First Care's backers are another couple, Mervyn and Georgina Smith, who are based in Dún Laoghaire in Dublin.

Another of the bigger players with a base in the capital is Silver Stream, which has six properties in Dublin, Galway, Meath and Tipperary. Three people own the business through a holding company, Sindall. Helen and Joseph Kenny own 40 per cent each, while Sebastian Devlin owns the remaining 20 per cent.

Once again, Silver Stream's backers are also involved in a range of other businesses. The six nursing homes in the group are incorporated as individual companies, but returns to the Companies' Registration Office (CRO) show that as individual businesses they were profitable. Profits for the year 2003 varied between €354,325 for the Croft Nursing Home in Inchicore Dublin, to €13,522 for Lakelands Nursing Home in Loughrea, Co Galway.

There are others that are seeking to develop as chains. Recently, Sonas Healthcare, which owns two nursing homes in the northwest, announced that it intended investing €100 million in developing a chain of "retirement care centres" across the country. These will largely be based on the retirement village model, which consists of independent units grouped around a central care facility. Its chief executive, Gerry Jordan, predicted that Sonas would build up to 40 individual units in the course of this expansion. The group has 10 individual shareholders, including Jordan himself and, once again, private investors are providing the cash.

It's clear at this stage that private investors consider it worth their while to get involved in providing a wide range of healthcare and related services, and Government policy is to use this to shore up the yawning gaps in the existing system.

The people backing these projects see a benefit for themselves. At this early stage, we still don't know if it will bring a long- term benefit in the form of a guaranteed high standard of care for the elderly.