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Driving Down £200M Rental Bill

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Seen in today's daily newspaper roundup at Hargreaves Lansdown:

Britain's biggest care homes operator is trying to drive down its £200m annual rental bill by striking a better deal with landlords. The move comes as Southern Cross carries out a two-month strategic review into whether it can remain independent. News that Southern Cross has written to landlords and local councils to try to squeeze better terms out of them may raise the hopes of Towerbrook Capital Partners, a private equity firm that made approach for the business ten days ago. Southern Cross spurned its advances, the Times reports.

A little research reveals a troubled company, making (ballpark) £20m losses on £900m turnover in each of the past two years. Shareholders almost completely wiped out as price fell from over 600p to under 20p, before recovering to 30p+ on reports of bid interest. On those figures, a 10% rent drop could offset the company's losses and return it to break-even, other things being equal.

Care homes are kind-of a crossover between commercial and residential property. How much influence can a single big player like this have on setting market prices? If they succeed, could it be another straw in the wind blown by housing benefit?

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