Double-digit yield at PSPI

Care home landlord Public Service Properties ( PSPI) published the usual increase in rental income, up 2.2 per cent to £8.5m in cash terms thanks to inflation-indexing clauses in its UK leases. But rising rents didn't have the usual affect of boosting property values because they don't reflect the economic reality of the care home market. That, plus falling occupancy at a Swiss home, trimmed the value of PSPI's estate by 1.3 per cent, dragging down the crucial net asset value figure.

Southern Cross wasn't one of PSPI's tenants, but its collapse has affected sentiment towards the sector and illustrates its problems. Care home operators' fee income isn't rising as fast as they once expected, given the favourable demographics - pressure on local-authority budgets is causing delays in the referral process. Accordingly, rent increases from the likes of PSPI have squeezed their profits.

PSPI only has one UK tenant, European Care (EC), which is the sixth largest market operator. Ralph Beney at RP&C, the asset management company that provides administrative services to PSPI, stresses that EC is on a firmer footing than Southern Cross because it still owns two thirds of its care homes. But EC's occupancy did fall three points to 85 per cent over the period.

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