CARE MANAGEMENT

Pride in purpose Personal commitment

Working together Community responsibility

“Our objective is the achievement of excellent service through good practice, education, training and legislative compliance

leading to increased standards of care for residents, resulting in greater sustainable profitability”.

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There are significant investment opportunities evolving in the UK Healthcare sector through a unique combination of social and economic factors. These factors include the well known demographical changes to our aging population, the resulting substantial increase in demand for care provision and requirement for more specialist services.

Over 80% of care homes in the UK are non purpose built. Besides regulatory compliance issues, this results in an enormous lack of good quality bed spaces, specialist facilities and an incredible shortage of high quality care options. The majority of existing stock is unsuitable to meet the ever increasing needs of more affluent and informed purchasers of care.

A large scale evolutionary shift is commencing both in supply and demand. It will be those operators who recognise future needs and who provide high quality services to meet them in an efficient and responsible manner that will prosper and lead the way forward.

Now is the right time to invest in good quality existing care homes or to build new homes:

• Land for new build homes is available at significantly lower values• Reliable investment through careful acquisition of good quality existing care homes• Asset backed financial investment model with income streams and capital growth• Ability to increase profits & capital value through professional management• Care is a rapidly growing market

Affinity Care Management has the operational experience, management ability and the right professional network to identify, target and value engineer profitable opportunities within the care homes sector.

Executive summary

Sutton Veny House, Nursing Home

savills.com

Healthcare

Purchase an existing care home business with affinity

investment summary 2011Affinity Care Group will be an operator of care businesses where its management and marketing skills can create extra value. We understand that the future of care is in providing and delivering to a high standard throughout the business process; from choosing homes in strong locations, in the design and construction, and, more importantly in the quality provision of general and specialist care.

affinity is in an excellent position to create successful investment opportunities

Affinity Care Group (ACG) operates from its head office in Poole, Dorset. Through our national agent network and other healthcare professionals we are quickly able to identify, evaluate and present good quality opportunities in the care home sector. Our current development plan anticipates acquiring up to 6 homes per year. This strategy would be largely be made up of a mixture of existing homes. All of the homes fit into areas of care where we have specific experience and where there is a proven demographic and economic demand;

• NursingandDementia• BrainInjuryandPhysicalDisability• LearningDisabilityandChallengingBehaviour

Available market information already indicates that 80% of existing supply will not meet the market demands within the next five to ten years. Affinity is ready to capitalise on the opportunities that are opening up.

business visionTo create a premium five star care home group. To meet the requirements of a growing market.To exceed the varied demands of the purchasers of care services.To be a socially responsible and highly committed industry operator.To set high standards in all areas of the business.

business strategy Target good homes with operational potential toadd value. Minimum 30beds with capacity to increasethrough development. Improvementofexistingcarefacilities.Addition of specialist care services.

Laing&Buisson,oneoftheleadingindependentprovidersofmarketintelligence on the independent health sector estimate a shortfall of

105,000 care home beds between 2010 and 2020. All the official sources of data and market intelligence show a clear sustainable demand in the UK

for a care home group.

AffinityCareHomesLtdArchway House, Archway RoadPoole,DorsetBH149AY

christopher bialan

• 25yearsexpertiseinacquisition,funding& development of over 100 care homes• PresidentNationalAssociationofCommercial FinanceBrokers1999-2000• BoardappointmentDorsetCareAssociationsince1993

rob cousins

• MetropolitanPoliceMajorCrimeTeam• DetectiveChiefInspectorintheProfessional Standards Department• 7 years experience as care home owner and operator

gavin Kaye

• ?????????????????• ?????????????????• ?????????????????

T:+44(0)1202721616F:+44(0)1202734390E: enquiries@affinitycarehomes.co.uk www.affinitycarehomes.co.uk

Purchase an existing care home business with affinity

investment summary 2011Affinity Care Group will be an operator of care businesses where its management and marketing skills can create extra value. We understand that the future of care is in providing and delivering to a high standard throughout the business process; from choosing homes in strong locations, in the design and construction, and, more importantly in the quality provision of general and specialist care.

affinity is in an excellent position to create successful investment opportunities

Affinity Care Group (ACG) operates from its head office in Poole, Dorset. Through our national agent network and other healthcare professionals we are quickly able to identify, evaluate and present good quality opportunities in the care home sector. Our current development plan anticipates acquiring up to 6 homes per year. This strategy would be largely be made up of a mixture of existing homes. All of the homes fit into areas of care where we have specific experience and where there is a proven demographic and economic demand;

• NursingandDementia• BrainInjuryandPhysicalDisability• LearningDisabilityandChallengingBehaviour

Available market information already indicates that 80% of existing supply will not meet the market demands within the next five to ten years. Affinity is ready to capitalise on the opportunities that are opening up.

business visionTo create a premium five star care home group. To meet the requirements of a growing market.To exceed the varied demands of the purchasers of care services.To be a socially responsible and highly committed industry operator.To set high standards in all areas of the business.

business strategy Target good homes with operational potential toadd value. Minimum 30beds with capacity to increasethrough development. Improvementofexistingcarefacilities.Addition of specialist care services.

Laing&Buisson,oneoftheleadingindependentprovidersofmarketintelligence on the independent health sector estimate a shortfall of

105,000 care home beds between 2010 and 2020. All the official sources of data and market intelligence show a clear sustainable demand in the UK

for a care home group.

AffinityCareHomesLtdArchway House, Archway RoadPoole,DorsetBH149AY

christopher bialan

• 25yearsexpertiseinacquisition,funding& development of over 100 care homes• PresidentNationalAssociationofCommercial FinanceBrokers1999-2000• BoardappointmentDorsetCareAssociationsince1993

rob cousins

• MetropolitanPoliceMajorCrimeTeam• DetectiveChiefInspectorintheProfessional Standards Department• 7 years experience as care home owner and operator

gavin Kaye

• ?????????????????• ?????????????????• ?????????????????

T:+44(0)1202721616F:+44(0)1202734390E: enquiries@affinitycarehomes.co.uk www.affinitycarehomes.co.uk

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Care Homes provide a secure asset backed investment All investments are based on the freehold purchase of a care home and the management of the trade business. As property forms the larger portion of the total costs of purchase, all investors have comfort in the knowledge that they have made a secure asset backed property investment.

Investment returns from care homes include income and capital growthInvestment into a strategic and targeted purchase of an existing care home business will deliver you a +10% composite annual return on investment. This return is made up from annual income and capital growth over the five year term. Our syndication plan is set up to return 5% income per year with an additional 5% capital gain over the investment term.

Investment capital is returned after five yearsThe term of the investment is for a minimum of five years. After the fixed term your investment and capital gain profit can be returned to you either through an asset sale (care home is sold), a shares sale (you sell you shares in the business) or the business is re-financed (producing a surplus cash pay out). All of these are reliable and realistic options for investors looking to exit with their initial investment and cash gain.

Investment syndication - A tried and tested model for successful investment The model of investment syndication was developed over seven years ago from our detailed market understanding and experience. The original principle behind the concept was simply to help clients already in the care sector upgrade from their smaller homes into larger more profitable care home businesses. The thinking behind this strategy was simply that larger and more specialist homes offered more secure and better longer term profitability. Over time it became obvious that as the investors needed no knowledge of the care sector to participate in the excellent returns of the care sector there was an opportunity to expand the syndication process to non care investors.

14 syndicates comprising 17 homes with 598 beds have been created since then.

Existing care home owners as well as first time investors who had no previous knowledge of the care sector became enthusiastic participants of the syndicates. Everyone immediately recognised the strong market demographics, the property backed investment and the potential for recession resistant income and returns. It’s a simple idea. Provide investors with an annual income plus create the opportunity for increased capital growth.

Acquisition of existing care homesCare homes provide a secure asset backed business opportunityAll acquisitions are based on either the freehold asset purchase or company shares purchase of a care home and the management of the trade business. As property forms the larger portion of the total costs of purchase, all shareholders have comfort in the knowledge that they have made a secure asset backed property investment.

Returns from care homes can offer income and capital growthA strategic and targeted purchase of an existing care home business should deliver a 10% + per annum effective return on investment. Our business plan for the acquisition of existing care homes is designed to return net 5% income per year with a minimum 25% capital gain over a 5 year term.

Capital can be returned after five yearsThe term of the investment is for a minimum of five years. After the fixed term the investment and capital gain profit can be returned either through a company share sale when the care home is sold, individual shares sale (we sell shares in the business) or the business is re-financed (producing a surplus cash pay out). These are reliable and realistic options for shareholders looking to exit with their initial investment and cash gain.

Acquisitions are driven using the expertise and established relationships of Affinity Care Management. A key part of any strategy is to identify and acquire homes with significant development potential, increasing the number of beds by extending homes through planning permission and project management.

Affinity homes are professionally managed aiming to deliver improvements in operating margin through increases in occupancy rates, improved average fees per bed, tight control of operational costs and by providing a high quality care service.

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Affinity is highly focused on becoming increasingly involved in new build projects. There is an ideal opportunity to acquire prime development sites at historically low prices, to build market leading corporate care homes which will pioneer the care market for years to come.

Land sites are readily available and construction tendering is currently highly competitive. Land prices for care home sites are at commercially viable prices.

Criteria for new build development:

• Target key areas with strong demographic demand and poor existing supply• Minimum 60 beds care home (will consider 50 beds with strong potential)• All rooms 15sq metres with en-suite wet rooms• Minimum EBIT of £12k per room per annum (Dementia/Nursing)• £15k EBIT per room per annum for specialist provision (Physically Disabled/Learning

Difficulties)• Forward thinking design to provide future proof facility

Demand for and expectations of the standard of living provided in care homes are increasing. A larger group of clients with a financial stake in their care has resulted in residents and their families expecting much better care and conditions than might previously have been deemed acceptable. Combined with the reformed regulatory framework, there is positive pressure to improve the quality and diversity of care home accommodation.

The main impact of legislation on new builds has been the stipulation of minimum space requirements, together with increases in the ratio of en-suite single bedrooms, enabling residents to retain a degree of independence and self-esteem. The Care Standards Act 2000 requires that a minimum of 80% of rooms provided are single bedrooms, reflecting the mostly single demographic of residents.

Development of new build care homes

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Affinity – A quality partner in care

Pride in purpose Personal commitment Working together Community responsibility

25 years of industry knowledge underpins our businessOver the past 25 years Chris Bialan has effected the funding, acquisition and sale of well over 100 care homes. In 1993 he was appointed to the Board of the Dorset Care Association. He currently heads the Boards of 10 care homes as Development Director specialising in Nursing, Dementia, Learning Disabilities and Physical Disabilities. In 2003 Chris joined forces with Rob Cousins and they syndicated their first care home purchase. In addition to owning and managing homes, Chris and Rob are frequently called in by major lenders to troubleshoot other care homes.

Through this extensive expert knowledge of the care sector Affinity is ahead of the evolving direction of the industry and have positioned the business strategically. This commitment to standards in the business is reflected in the high quality CQC (Care Quality Commission) ratings of Affinity managed homes.

A success partner for care home acquisition The model of syndication was developed over seven years ago from this detailed market understanding and wealth of experience. The original principle behind the concept was simply to help clients already in the care sector upgrade from their smaller homes into larger more profitable care home businesses. The thinking behind this strategy was that larger and more specialist homes offered more secure and better longer term profitability. Over time it became obvious that as the investors needed no knowledge of the care sector to participate in the excellent returns, there was an opportunity to expand the syndication process to non care experienced investors.

Existing care home owners as well as first time investors who had no previous knowledge of the care sector became enthusiastic participants of the syndicates. Everyone recognised the strong market demographics, the property backed investment and the potential for recession resistant income and returns. It’s a simple idea. Provide investors with an annual income, whilst creating the opportunity for increased capital growth.

Professional care team providing specialist care services The business has an ongoing strategy to develop specialist care services within all of the care homes. Affinity started with EMI (Elderly Mentally Ill - Dementia) homes, but quickly developed into other more specialist areas of care including PD (Physical Disabilities), ABI (Acquired Brain Injury) and LD (Learning Difficulties). The Affinity business objective is the achievement of excellent service through good practice, education and training and compliance of legislation which will lead to increased standards of care for all of the residents.

Experienced business team with quality management infrastructure and technical support Affinity has developed and adapted financial, operational and marketing management processes that enable the business to optimise the profitability of each home. As the weight of legislation continues to increase, so does the necessity for a centralised Head Office function which Affinity provides. It is this very weight of legislation that gives Affinity huge opportunities to exploit the gaps exposed as the smaller operators are inevitably squeezed out of the market.

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25 years of industry knowledge underpins our businessOver the past 25 years Chris Bialan has effected the funding, acquisition and sale of well over two hundred care homes. In 1993 he was appointed to the Board of the Dorset Care association. He currently heads the Boards of 10 care homes as Development Director specialising in Nursing, Dementia, Learning Disabilities and Physical Disabilities. In addition to owning and managing homes Chris and Rob Cousins are frequently called in by the major lenders to troubleshoot care homes on their books.

Through this extensive knowledge of the care sector we know that we are totally on target with the direction of the industry and have positioned the business strategically to deal with the current funding cuts. By watching closely and staying up to date with all the latest industry thinking we know that we are very much in tune with the future direction of the care industry. We are committed to being at the forefront driving these changes and to continuously improving the standards of our care. This commitment to standards in our business is reflected in the high quality CQC ratings of our syndicated homes

Professional care team providing specialist care services The business has an ongoing strategy to develop specialist care services within all of

the syndicated care homes. We started with EMI (Elderly Mentally Ill - Dementia) homes, but quickly developed into other more specialist areas of care including PD (Physical Disabilities), ABI (Acquired Brain Injury and LD (Learning Difficulties). Our business objective is the achievement of excellent service through good practice, education and training and compliance of legislation which will lead to increased standards of care for all of our residents.

Experienced business team with quality management infrastructure and technical support We have developed and adapted financial, operational and marketing management processes that allow us to optimize what we do. As the weight of legislation continues to increase so does the necessity for a centralized Head Office function which Affinity provide. Perversely it is this very weight of legislation that gives Affinity huge opportunities to exploit the gaps left as the one man band operators inevitably get squeezed out of the market.

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King’s Lodge, Surrey

Kings Lodge was purchased in 2005 as a 38 bed nursing home with planning permission for an additional stand alone 40 bed extension. At the time of purchase Kings Lodge had only had limited capital spent on it for many years resulting in poor standards and low staff morale. Despite this and the physical restraints of the original Edwardian property, Affinity were determined that Kings Lodge would become a market leader in care provision and instigated a full programme of refurbishment for the entire building.

The refurbishment, which took over two years to complete, included redesigning windows to suit wheelchair users, the conversion of two bedrooms into a dedicated gym area, providing a new IT room complete with Wifi and webcams, installing a purpose built kitchen area and renovation of staff accommodation. In addition, with the help of the Probation Service, the overgrown garden was cleared and adapted for wheelchair users.

As well as undertaking the refurbishment and purchase of additional staff accommodation, Affinity increased staffing ratios, invested more in staff remuneration and provided specialised training for the staff. Affinity repositioned Kings Lodge from a simple nursing home to a centre of excellence for treatment of physically disabled clients and those with Acquired Brain Injuries. The home enjoys a three star “excellent” rating from CQC and has the coveted preferred provider status of the Multiple Sclerosis Society.

During this time, despite being in an extremely sensitive planning area (green belt), the planning was completely reworked to provide a very highly specified, top end extension that will provide the standard of accommodation and services that physically disabled residents require and expect.

The new extension costs £2.5m creates an additional 24 beds, adding £750,000 to EBIT and increasing capital value by £5m.

“To all the staff at Kings Lodge, I know Mum liked it here and you always made her feel one of the family.” Family of Mrs Ann Gilbert

“To you all, words cannot express our thanks for the wonderful care and affection that was shown to our Mother during her time with you. We will always sing your praises.” Family of Mrs Joyce Reed

Performance at purchase £’sNo. of rooms Purchase price EBIT EBIT per bed Value per bed

38 4,000,000 430,000 11,316 105,263

Performance currentlyNo. of rooms Market valuation EBIT EBIT per bed Value per bed

38 6,000,000 650,000 17,105 157,895

Performance projectedNo. of rooms Market valuation EBIT EBIT per bed Value per bed

62 11,000,000 1,400,000 22,581 177,419

Previous project

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The Malthouse, Gillingham

Previous project

The Malthouse was purchased in 2007 as a 31 room, high quality residential care home with nine Independent Living Units in the grounds. Although the property appeared well cared for, the reality was that it was physically tired and largely non compliant with future standards. This lack of compliance stretched across most aspects of the business which had to be addressed. The critical issue was that the low dependency care market it was currently enjoying was declining.

Affinity commissioned a complete refurbishment program which included the provision of extensive double glazing, replacement of heating services and the upgrading of IT programs. Modern working and business practices were also introduced into the home. By understanding the specific market and through offering modern high end residential care to its residents the home achieves far higher fee and profit levels than it could have ever done without the management and development skills of Affinity.

During this period Affinity successfully achieved planning permission to provide another five bedrooms in the main building. An option was also obtained on the house next door and planning was achieved for a state of the art 27 bed extension for nursing and dementia clients.

The new development will provide much needed specialist nursing and dementia facilities. This extension costs £2m, increasing EBIT by £500,000 and adding over £4m to the capital value of the home.

Performance at purchase £’sNo. of rooms Purchase price EBIT EBIT per bed Value per bed

31 3,750,000 400,000 12,903 120,967

Performance currentlyNo. of rooms Market valuation EBIT EBIT per bed Value per bed

31 4,250,000 450,000 14,516 137,096

Performance projectedNo. of rooms Market valuation EBIT EBIT per bed Value per bed

65 8,500,000 950,000 14,615 130,769

“The Malthouse is more like a real home, and the management and staff are marvellous.”Mary Morris

“I am being so well looked after, better than I would ever have dreamed of. It is nice to be in capable hands you can trust.”Mrs Hilary Wolk

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Allenbrook Nursing Home was purchased in 2005 as a 41 room nursing home with a “meals on wheels” service to the local community run from the home. Although Allenbrook was focused on the care it provided and its occupancy rates; it had no modern business principles or Key Performance Indicators in place. Despite being a picturesque building set in extensive gardens, it was largely tired and non future compliant. The trained staff, although good nurses, had no idea of the hygiene requirements to run the meals on wheels service.

On purchase Affinity decided to shut down the meals on wheels service and instigated an extensive refurbishment program. A new Registered Manager was recruited with a proven track record of quality care and entrepreneurship who very quickly installed business principles into the home, with a resultant increase in performance.

This increase in performance allowed Affinity to reinvest more money into the home and re-launch the meals on wheels service (Home Fare). The Home Fare service, like Allenbrook, continues to go from strength to strength and Allenbrook now has a real identity and brand loyalty within the community it serves.

At the time of writing, Affinity are reworking the recently achieved planning permission for an extra nine bedrooms to apply for a 20 bed extension at the home.

Performance at purchase £’sNo. of rooms Purchase price EBIT EBIT per bed Value per bed

41 2,550,000 400,000 9,756 62,195

Performance currentlyNo. of rooms Market valuation EBIT EBIT per bed Value per bed

41 4,500,000 550,000 13,414 109,756

Performance projectedNo. of rooms Market valuation EBIT EBIT per bed Value per bed

60 7,000,000 800,000 13,333 116,667

“Before arriving at Allenbrook, I had heard such good reports about it and I am pleased to say that I have not been disappointed; I am very happy and content living here.” Nellie Tiller

“I used to have so many worries before moving to Allenbrook. Now I can really enjoy my days without having to worry at all as everyone makes me so comfortable.” Rosemary Williams

Allenbrook, Fordingbridge

Previous project

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Vision• Establish a market leading nationally branded care

home management / operating company

• Manage a group of new build, high spec (future proof) care homes, complimented by quality existing homes

• Provide superior level of dementia care, high end nursing care and specialist services such as LD, PD

& ABI

• Deliver consistent operational excellence leading to higher profitability

• Create value for all partners returning good income

Objectives• Management of 1,000 bed spaces (15 - 25 homes)

• Acquire management contracts / operating leases for 4 to 6 homes per year over 5 year period

• Maximise operating returns through high occupancy levels, specialist services, private fee’s and managing costs

• Take advantage of growing UK care market

• Partner professionals with complimentary skills and resources

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Strategy• Develop new builds and acquire existing care homes

located throughout the UK

• Identify key town centre sites where there is proven demographic demand

• Joint venture with developer, construction & investment partners on new projects

• Increase reputation, recognition and brand value by striving for excellence throughout Affinity business

• Work constructively and partner with all key stakeholders in the UK care industry

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Affinity Care ManagementManaging a number of existing homes gives Affinity a detailed knowledge of the care sector and a thorough understanding of the best industry business practices. Affinity has developed and adapted financial, operational and marketing management processes that promote a more efficient and effective approach to attracting and retaining public and private users of care services. Government legislation relating to the care industry is so immense, creating huge management and administration barriers to entry for individual and smaller operators. The future of the care industry is undoubtedly in the hands of organised professionals with specialist skills and facilities.

Affinity homes have best business practices built into the day-to-day operations. This is part of an ongoing drive and commitment to lead and exceed industry standards in the provision of care and in the operations of the business. The reward for this approach is reflected in the high quality ratings. By being proactive, keeping a close eye on changes in the care sector and by staying ahead of all the latest industry thinking Affinity is leading the future direction of the care sector.

Affinity are committed to continuously improve standards of care and welfare in care homes and in the community.

Affinity has an ongoing strategy to develop specialist services within homes. Starting with EMI (Elderly Mentally Ill) homes, the business quickly developed into other more specialist areas of care including PD (Physical Disabilities), ABI (Acquired Brain Injury and LD (Learning Difficulties).

• Proven care home management company with a track record of increasing fees, occupancy levels and profits

• Increase bed capacity of care homes through planning permission and property development

• Demand is increasing as the over 85 year old demographic expands, yet supply is contracting under the burden of increasing regulatory compliance. The net result is occupancy rates of 92%, rising profits and capital values for well managed future

proof homes

• Future trends for the sector are extremely favourable with demand for care in the UK projected to significantly grow over the next 10 years producing a requirement of an additional 100,000+ beds

• More important than the number of beds required is the focus on the increasing demand for more specialist services and better facilities

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Chris Bialan ChairmanFinance & Acquisition

Since 1985, after leaving a financial career in the city Chris has been proactively involved in the care sector. He is well regarded as a business specialist with a detailed knowledge and understanding of the UK care industry. He worked with care home owners, operators, developers, contractor associations, investors and banks before becoming a home owner and operator himself. His skills and expertise have been rewarded and recognised at local and national level. In 1995 Chris was a finalist in The Institute of Directors Marketing Challenge Award for innovative care home services. In 1999 and 2000 he was President of National Association of Commercial Finance Brokers (main board Director 1993 to 2001). As a specialist consultant Chris sat on the board of the Dorset Care Association from 1993.

Key skills:• Locate and purchase care homes• Research and due diligence pre-purchase• Development of care home services & future strategy• Ownership vehicles and business structure development• Financial appraisals, budgeting, forecasting & management

Rob Cousins Managing DirectorOperations & Management

Before coming into the care industry Rob spent 15 years in the Police service rising to the rank of Detective Chief Inspector. It was in his various roles within the service that Rob became highly experienced in the demands of running large departments on a 24 hour, 7 days per week basis. Working in such pressurised environments taught him the critical importance of inter-personal skills, the responsibility for and welfare of your team and the benefits and sustained rewards of good management performance. He entered the care sector in 2003 purchasing a 49 bed Dementia home in Bournemouth.

Key skills:• Personnel development and staff management• Legislative compliance throughout the business• Care home management and business procedures• Development of care and specialist care services• Quality standards and planning

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AN AGEING OPPORTUNITy

Retired people form the country’s fastest growing demographic group. An explosion of grey hair has significant implications for the future of retirement housing and the wider residential market.

This demographic reality appears to point to a business opportunity for developers and house-builders. We would agree, but there are more significant issues to consider that we believe will have a dramatic impact on the prospects for this particular sector.

In this review we assess the combined impact from an ageing population, reform of the care sector, the looming pension crisis, fiscal tightening on housing wealth and housing choices for retirees. We provide our views on the opportunities opening for those looking to develop property aimed at older occupiers.

Thinking and practice in the UK retirement sector has long lagged behind innovation from Australia, Scandinavia, the US and New Zealand. Our view is that the time is ripe for retirement housing in the UK to grow up.

2010RETIREMENTHousing ReportKnight Frank

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Pride in purpose Personal commitment Working together Community responsibility

CARE MANAGEMENT

Current total market value estimated at £11.7 billion Private: £7.68 billion (65% of beds) / Local Authority & NHS: £2.6 billion (22% of beds) / Not for profit: £1.5 billion (13% of beds) / 476,200 beds across an estimated 15,000+ homes

Care market is unconsolidated • Fragmented market with top 5 players accounting for just 17% of beds• Majority of homes are run by independents• Majority of homes have a registration of less than 25 bed spaces• Majority of home are non-purpose built converted private houses or hotels• Increasing standards and pressure from regulatory bodies (National Care Standards,

Care Quality Commission)• Increasing regulation and demand for quality care and living environment for elderly• Increasing barriers to entry for non-care professionals

Care Standards Act 2000 - 1st June 2003 The Department of Health issued a new set of National Minimum Standards (room sizes, facilities, communal spaces, accessibility, services, etc) with a provision for homes registered prior to 1st April 2002, allowing them to maintain standards of accommodation in existence at that date – Market is driving demand and is overtaking minimum standards.

A to Z Care Homes Database indicates that there are 13,044 care homes for the elderly in the UK, offering 440,846 bed spaces. 328,367 bed spaces are within single bedded rooms and of these only 204,153 have en suite facilities – Poor quality standard of existing stock.

Since the end of 2002 the care industry for the elderly has lost 3,943 homes / 89,700 bed spaces. Over the same period 1,484 new care homes / 48,566 bed spaces have been created. A resulting net loss of 2,459 homes / 41,134 bed spaces (A to Z Care Homes Database).

Laing & Buisson, one of the leading independent providers of market intelligence on the independent health sector estimates that there will be a shortfall of 105,000 beds between 2010 and 2020.

The Joseph Rowntree Foundation estimates increases in residential care from 450,000 (2004) to more than 1,100,000 (2050). The Laing & Buisson “Care Of Elderly People” UK Market Survey 2008 identifies how demand for residential care services escalates with age. 0.04% of the population under 65 years of age are likely to require residential care compared to 17.5% of over 85 year olds.

UK Healthcare - Market research

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CARE MANAGEMENT

Department of Health statistics show that lack of capacity in long term residential and nursing care places is the leading factor in delaying discharges in England. “The role of the independent sector (private sector providers and voluntary organisations) is crucial to developing longer term solutions to capacity problems.” It goes on to recommend: “ Residential and nursing home shortages will only be tackled with the full involvement of the independent sector. NHS Trusts and Primary Care Trusts should involve independent providers more in planning and developing older people’s services”

Demographic information(Source: Government Actuary Department 2004 based projection at 2004)

2008 UK Population• 13.8% are 65 years and over• 7.8% are 75 years and over (3,988,000)• 1.9% are 85 years and over (1,113,000)

2028 UK Population• 23.8% are 65 years and over (14,431,000)• 12.1% are over 75 years (7,331,000)• 3.6% are 85 years and over (2,208,000)

2041 - The number of elderly persons over 65 years of age reaches its peak. Of total population 24% over 65 / 13% over 75 / 5% over 85 (2,767,000) 2073 - The number of elderly persons over 85 years of age reaches its peak. Of total population 8.7% (4,489,000)

OUR vIEW ON THE HEALTHCARE MARKET

Across the world, the upward trend in healthcare spending is relentless, driven by powerful and enduring factors: ageing populations in Europe and the US, rising affluence in Asia, and a widespread ‘consumer’ mindset that expects every expensive new treatment to be instantly available.

These fundamental drivers of growth make healthcare a compelling and resilient sector for investors, especially at times of global economic uncertainty.

The constant rise in demand means that healthcare budgets, whether publicly or privately funded, are under continuous pressure. Extra billions will undoubtedly find their way into healthcare provision but expectations will not be met without huge strides in efficiency and innovation.

Investing in Healthcare3i

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Sutton Veny House, Nursing Home

savills.com

HealthcareCARE MANAGEMENT

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Pride in purpose Personal commitment Working together Community responsibility

CARE MANAGEMENT

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“The UK is lagging far behind our European and Australian counterparts in recognising the specialist design needs of Dementia care which remains the largest growth market over the next 25 years in the UK.

The Affinity view is that we must take the time and effort, skill and expertise to build more specialist homes targeting the private market. The higher fees in this market sector mean you can afford to employ good staff on decent wages, and, although the cost average may be higher, the long term sustainable profit is higher, as is therefore the capital value of the business.

As providers of social care, Affinity have an enormous social responsibility to provide the best welfare for their staff and elderly residents, both in residential care and within the community. Affinity has the ambition, strength of purpose and the right combination of core values to provide and deliver the highest level of service to everyone involved in their care business. Affinity believe that this approach will deliver long term higher profitability enabling them to invest back into the sector and continue to lead the market.

Affinity are significantly different from the majority of other operators who tend to focus on short term profits. Affinity philosophy is the absolute opposite of this building a very strong managerial team headed by a qualified and suitably experienced business manager. Affinity knows that this attitude supports a more consistent approach to success over the longer term - pay the managers above the industry average and tie in an element of their renumeration to the performance of the home which attracts candidates with vastly greater combinations of care and business experience.

Affinity take the same philosophy towards all of their staff taking great pride in providing the best possible standards of employment. This investment in staff is returned in the 100% commitment received from all of the team. The Affinity ethos of a positive and good contribution towards all is then returned through an overall high level of staff commitment throughout the whole home. This can be felt by residents, experienced by their families and admired by many professional connections.

The effect and benefit of this approach contributes to higher occupancies with a majority of private paying clients, resulting in higher and longer term sustainable profits, higher capital values and gains.

In addition to attracting the best quality staff and looking after them physically and financially, Affinity have also consistently spent time and money upgrading all existing homes. Providing the best possible standard in the physicality of the building is one of the keys to retaining high levels of profitable occupancy. This combination approach means that most Affinity homes attract far higher fees than average and generally with much higher occupancies of private clients, resulting in higher and more stable profits and capital gains for shareholders.

The future of care belongs to ethical and professional providers of care

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As well as retaining good quality staff and maintaining high standards with the upkeep of the buildings, Affinity have also been very proactive towards anticipating the future needs of the community and the industry. In this respect Affinity have been actively repositioning the care homes to provide a higher standard of specialist facilities. Where previously many care homes have been purely in the residential care market, Affinity have consciously improved facilities and upgraded staff and training in order that the homes can provide better care and facilities for high dependency clients. Homes have been moved from residential care into dementia care and from general nursing into more specialist fields such as learning diifficulties (LD) and physically disabled (PD) homes. This is where Affinity know there is the greatest future demand in the next generation of providing care.

Average industry profit per year per bed is just under £10,000. A 40 bed care home would on average expect to produce an EBIT of £400,000 a year. Affinity homes are budgeted to achieve £12,000 a bed as a minimum. Specialist homes are targeted to produce £15,000 a bed. Affinity achieve this success due to the quality of the management team, through continual staff training and by improving the range of specialist facilities.

Equally important is recognising and balancing the future needs of the local community specifically and the industry generally. Promoting and providing the services which attract a premium is fundamental to the long term sustainability and profitability of the Affinity business model.

Home care and respite careAffinity understands that staying in familiar surroundings and retaining independence is of paramount importance to the well-being and quality of life for many elderly people.Extending all the services of quality trained care home staff into the community, for the community represents the best of Affinity’s holistic approach towards modern care provision. Affinity actively promotes and supports independent living through its domiciliary care business Home Care Angels. The unique services provided have been developed in direct response to demand, including Day Respite Care, Carer Respite Support, Dementia and Learning Disability Care, as well as general care. These services are based on many years of developing best practice and operation within dedicated care homes which Affinity through Home Care Angels can now bring directly into the community.

By taking the longer term view, building a team of loyal management and staff who are, in turn, totally committed to delivering higher standards of care for the residents, Affinity has developed a business model that produces higher levels of occupancy and at higher fee rates than the national averages for the industry.

Affinity Care Management LtdArchway House1a Archway RoadPooleDorsetBH14 9Ay T: +44 (0) 1202 721616F: +44 (0) 1202 734390E: enquiries@affinitycm.co.ukwww.affinitycm.co.uk

Chris BialanE: chrisbialan@affinitycm.co.uk

Rob CousinsE: robcousins@affinitycm.co.uk

Administration and accounts ofiice Regional managers care team meetingCare home syndicate board meeting

CARE MANAGEMENT

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