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Bill Colvin is paying the price for the recent failure of Southern Cross's sale-and-leaseback business model, but he isn't escaping from it in a hurry. He will remain chief executive until the company's refinancing is completed. The freeholds of a further seven homes were sold today, but at a £3m book loss.
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Like that of Richard Trevillion at Meldex, whose resignation was also announced today, Mr Colvin's departure was no great surprise. The wolves have been circling ever since a profit warning in July caused an 85 per cent collapse in the share price. The warning came after Southern Cross failed to sell freehold properties in order to repay a short-term financing loan for £46m.
Mr Colvin's misjudgement was to think that Southern Cross's previously highly successful strategy of financing care home purchases on a short-term basis, and then offloading the freeholds to a landlord, would work indefinitely. A more prudent person might have considered the possibility that the credit crunch would cause investor appetite for such assets to dry up.
Still, the situation is far from irretrievable. Southern Cross is a big player in a demographically attractive sector, it has a strong asset base and its underlying debt (excluding the bridging loans) is a reasonable £47m (as at 30 March).
Once the remaining freeholds have been sold and leasebacks agreed, the company will be on a more stable footing. Still, July's share price implosion will stay in investors' memories for a while, so the shares remain fairly priced for now, at 144p.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
