Knight Frank Report

Valuation Report
Cambian Group PLC Portfolio
Prepared on behalf of CareTech Holdings PLC &

Panmure Gordon (UK) Limited
Date of issue: 19 September 2018
Contact details
CareTech Holdings PLC & Panmure Gordon (UK) Limited, Metropolitan House, 5th Floor, 3 Darkes Lane,
Potters Bar
Michael Hill
Knight Frank LLP, 55 Baker Street, London W1U 8AN

Patrick Evans, 020 7861 1757, Patrick.Evans@knightfrank.com
KF ref: I:1061510
Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934.
Our registered office is 55 Baker Street, London, W1U 8AN where you may look at a list of members’ names.
Executive summary
The executive summary below is to be used in conjunction with the valuation report to which it forms part and is
subject to the assumptions, caveats and bases of valuation stated herein and should not be read in isolation.
Portfolio Cambian Group PLC Portfolio.
Description The portfolio comprises the Cambian Group PLC portfolio of children’s homes, SEN
schools, other associated care facilities and vacant properties. The portfolio comprises the
following:
● 224 properties comprising:
● 153 freehold properties (152 owner occupied, one tenanted)
● 12 Long Leasehold properties
● 59 Leasehold properties
Tenure Properties are owned freehold, long leasehold or leasehold.
Valuation ● Properties have been valued as a portfolio.

considerations
● The portfolio would be sold as single lot.
● The portfolio valuation incorporates head office costs necessary to manage a portfolio
of this scale and a portfolio premium.
● Trading properties are valued as fully equipped operational entities having regard to
trading potential.
● Closed properties are valued assuming the business is closed and the property vacant
within existing use
● The portfolio value reported includes a portfolio premium which we believe would be
achievable on a portfolio of this scale and quality as at the date of valuation.
Valuation date 19 September 2018
Valuation Fair Maintainable Trade set at stabilised level for each trading property
summary
The following Multiplier have been applied to arrive at the Market Values:
● Portfolio: 11.97x FMT EBITDA
Valuation Portfolio Market Value: £350,000,000
Property Risks ● The Market Value of the properties as a Portfolio differs significantly from the value of
the properties if they were sold as individual assets.
Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510 Page 3
Prepared on behalf of CareTech Holdings PLC & Panmure Gordon (UK) Limited │ Date of issue: 19 September 2018
Executive summary cont.
● A portfolio valuation includes an allowance for a premium or discount over the

aggregate individual values.
● Premiums and discounts have historically been transient and dependent upon a
number of cyclical factors, both at a micro and macro level, as well as motives of both
parties to a transaction.
● We have applied a premium over the aggregate values of the properties in the event
they were to be sold on an individual basis in an orderly process, without flooding the
market.
● Our portfolio valuation includes a management overhead of circa £30 million in our fair
maintainable trade, a reduction on the FY18 forecast overheads of circa. £34million.
This has been arrived at based on synergies for the purchaser and after considering
analysis by other due diligence providers around the true overhead costs of the group
on which we have relied.
● We strongly suggest that your legal advisers confirm that our understanding of any legal
matters is correct.
● The properties operate in a market which is subject to regulation. The necessity to
retain the relevant registrations and maintain the quality of provision is of paramount
importance in protecting the values reported herein.
● The National Living Wage (“NLW”) will increase with the aim of a rate of £9.00 per hour
by 2020. It is likely that to retain high calibre staff members, increases in pay rates will
need to track or even exceed the inflationary growth in NLW, particularly in more
affluent locations.
● Following the Referendum held on 23 June 2016 concerning the UK’s membership of
the EU, a decision was taken to leave. We bring to your attention the important
comments in the Property Risk section of this report.
Contents
Executive summary 3
1 Instructions 6
Engagement of Knight Frank LLP 6
Scope of enquiries & investigations 9
Valuation bases 10
2 The Properties 11
Summary 11
Services 11
Legal title 12
Tenancies 12
Condition 12
Environmental considerations 13
Sustainability 14
Statutory Matters 15
3 Valuation 16
Methodology 16
Comparable evidence 19
Valuation considerations 19
Valuation bases 19
Valuation date 19
Market Value 19
4 Property risk analysis 21

General comments 21
Risks relating to the property 21
Income risks 22
Economic & property market risks 22
Valuation risks 23
Risks relating to the terms of the instruction 23
1 Instructions
Engagement of Knight Frank LLP

Instructions 1.1 We refer to our Terms of Engagement letter and General Terms of Business for
Valuations dated 9 August 2018, and the variation to the terms, by email, dated 14
September 2018 to provide a valuation report on the Cambian Group PLC Portfolio
(“the properties”).
1.2 The addresses of registered children’s homes are not made publically available for
security purposes. As a result we have been instructed not to include a list of the
properties valued.
Client 1.3 Our client for this instruction is CareTech Holdings PLC and Panmure Gordon (UK)
Limited (“the Client”).
Valuation 1.4 This valuation has been undertaken in accordance with RICS Valuation – Global
standards Standards 2017, incorporating the International Valuations Standards, and RICS
Professional Standards UK January 2014 (revised April 2015). References to “the
Red Book” refer to either or both of these documents, as applicable.
Purpose of 1.5 The Valuation is provided solely for the purpose of the inclusion of the Valuation
valuation within the prospectus to be prepared in connection with the revised offer for Cambian
Group PLC and the proposed re-admission of CareTech Holdings PLC’s shares to
trading on AIM and in accordance with clause 4.1 of our General Terms may not be
used for any other purpose without our express written consent.
Conflict of 1.6 We confirm that we do have a material connection or involvement giving rise to a
interest potential conflict of interest, as set out below:
● We valued those Properties then owned by Cambian Group PLC as at 3 March
2014 for inclusion within the approved prospectus for the Cambian Group PLC's
initial public offering of shares on the Official List of the UK Listing Authority.
● We have valued a single school and a portfolio of 91 properties formerly owned
by Cambian Group PLC which does not form part of the subject portfolio in the
last 24 months for internal purposes or for inclusion in Cambian Group PLC's
financial statements.
● Subsequent to this instruction we are carrying out a valuation of 70 of the
properties within the subject portfolio on behalf of National Westminster Bank
PLC, NatWest Markets PLC and Lloyds Bank PLC for secured lending purposes.
1.7 We have previously disclosed this to you and you have confirmed that
notwithstanding this matter, you are content for us to proceed with this instruction.
We are providing an objective and unbiased valuation.
1.8 We are acting as External Valuers as defined in the Red Book. Book (independent
experts for the purposes of paragraph 130 of the European Securities and Market
Authority’s (“ESMA”) update of the CESR recommendations for the consistent
Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

implementation of Commission Regulation (EC) No. 809/2004 implementing the
Prospectus Directive (the "ESMA Recommendations"), qualified for the purpose of
the valuation.
Responsibility 1.9 For the purposes of Prospectus Rule 5.5.3(R)(2)(f), we are responsible for this
to third parties Valuation Report and accept responsibility for the information contained in this
Valuation Report and confirm that to the best of our knowledge (having taken all
reasonable care to ensure that such is the case), the information contained in this
Valuation Report is in accordance with the facts and contains no omissions likely to
affect its import. This Valuation Report complies with Rule 5.6.5G of the Prospectus
Rules and paragraphs 128 to 130 of CESR's recommendations for the consistent
implementation of the European Commission's Regulation on Prospectuses no.
809/2004. We are advised by Cambian that that they hold Properties on the balance
sheet at net book value. In accordance with our terms of engagement, and as set out
above, our opinion of Market Value is based on the hypothetical sale of the
Properties, sold as a single portfolio and with reference to the RICS Red Book. It
would not be appropriate or possible to compare such a valuation to one for accounts
purposes, which was prepared by others, and which are, we are advised, prepared in
accordance with accounting rules adopted by Cambian and which is carried out at an
individual property level and not as a portfolio.
Disclosure & 1.10 Clauses 4.3 to 4.6 of the General Terms limit disclosure and generally prohibit
publication publication of the Valuation. As stated therein, the Valuation is confidential to the
Client and neither the whole, nor any part, of the Valuation nor any reference thereto
may be included in any published document, circular or statement, nor published in
any way, without our prior written consent and written approval of the form or context
in which it may appear. Notwithstanding this, the Valuation may be disclosed as set
out below:
Notwithstanding Clause 4.1 of our General Terms of Business for Valuations, we
confirm that we will consent to the Valuation and/or a summary of the Valuation
being disclosed in a prospectus issued for the Purpose as set out below:
The Valuation is capable of being disclosed by the Client (and in the case of (ii) to (v)
on a non-reliance basis only):
(i) if the report is publicly available or if any part is publicly available, only that part
which is publicly available, in each case other than as a result of a breach by
you of this provision;
(ii) in connection with any actual or potential legal or arbitration proceedings;
(iii) if requested or required by law or regulation or by any court of competent
jurisdiction;
(iv) to any competent judicial, governmental, banking, taxation or other regulatory
authority or supervisory body; and
(v) to or pursuant to the rules of any stock exchange or listing authority or similar
body.

It is a condition of such disclosure that each party in receipt of the report agrees and
acknowledges that the Valuation cannot be relied upon by them, and we do not
accept any responsibility, duty of care or liability to them, whether in contract, tort
(including negligence), misrepresentation or otherwise in respect of the Valuation
and the information it contains.
In addition you (for yourself and on behalf of those other parties to whom reliance is
given in respect of the Valuation) agree that the Aggregate Limit shall be the
aggregate limit in respect of the Valuer’s liability to those parties in respect of the
Valuation under this Letter and the Valuer’s liability to National Westminster Bank plc
and Lloyds Bank Plc (and any other parties to whom reliance on the lenders'
valuation report is permitted) in respect of the valuation report for the Properties to be
carried out by the Valuer in accordance with a letter of engagement from National
Westminster Bank plc to the Valuer dated 9 August 2018. It is agreed that in no
event shall the Valuer’s aggregate liability in respect of its valuations carried out in
connection with the proposed offer for the shares in Cambian Group PLC, whether in
respect of the valuation report given to you as offeror or to National Westminster
Bank plc and Lloyds Bank Plc as lenders, exceed the Aggregate Limit.
Limitations on 1.11 No claim arising out of or in connection with this valuation report may be brought
liability against any member, employee, partner or consultant of Knight Frank LLP. Those
individuals will not have a personal duty of care to any party and any claim for losses
must be brought against Knight Frank LLP.
1.12 Knight Frank LLP’s total liability for any direct loss or damage caused by negligence
or breach of contract in relation to this instruction and valuation report is limited to the
amount specified in the Terms of Engagement letter, a copy of which is attached.
We do not accept liability for any indirect or consequential loss (such as loss of
profits).
1.13 The above provisions shall not exclude or limit our liability in respect of fraud or for
death or personal injury caused by our negligence or for any other liability to the
extent that such liability may not be excluded or limited as a matter of law.
Responsibility 1.14 In accordance with VPS3 of the Red Book and Rule 29 of the City Code on
for the valuation Takeovers and Mergers, the valuer, on behalf of Knight Frank LLP, with the
and expertise responsibility for this report is Patrick Evans MRICS, RICS Registered Valuer. Parts
of this valuation have been undertaken by additional valuers as listed on our file. We
confirm that the valuer and additional valuers meet the requirements of the Red
Book, having sufficient current knowledge of the particular market and the skills and
understanding to undertake the valuation competently.
Regulated 1.15 This valuation is a Regulated Purpose Valuation within the meaning of the Red Book,
Purpose which requires us to make the following disclosures:
valuations
● In relation to Knight Frank’s preceding financial year, the total fees to be paid by
(RPVs)
the Client, as a percentage of the total fee income of Knight Frank, is less than
5%.

Vetting 1.16 This report has been vetted as part of Knight Frank LLP’s quality assurance
procedures.
Scope of enquiries & investigations

Inspection 1.17 You have instructed us to undertake a restricted service, namely:
We were instructed to only inspect a representative sample of the properties. We
have therefore carried out an internal and external inspection of 70 of the properties
held within the portfolio. Our inspection of the properties was undertaken between 28
August and 3 September 2018. The properties that we have inspected are a
combination of those which have been added to the Cambian Group PLC portfolio
since our valuation as at 3 March 2014 for the purpose of the IPO, and others which
we consider appropriate to ensure that we carry out an inspection of a representative
sample of the properties.
Desktop 1.18 The remaining properties have been valued on a desktop basis, i.e. without re-
inspection. These properties, excluding a number of new leasehold properties, have
previously been inspected by Knight Frank, most recently as part of the 2014
Valuation. As required under VPS2 of the Red Book, we have therefore valued these
on the assumption that they remain in the same condition as at the previous
inspection and that there have been no material physical changes to the properties
or to the nature of the surrounding areas since the date of the last inspection. This
has been confirmed by the management of Cambian and we have relied upon this in
undertaking the valuation.
Restrictions on 1.19 A small number of properties were inspected externally only as no internal access
inspections was possible at the time.
NB 1.20 You should note that the desktop nature of a large portion of the valuation
significantly limits the extent to which reliance can be placed upon this valuation
report. However, the properties inspected include over half the bed/place numbers
and over or close to 50% of the income and EBITDARM of the portfolio historically,
currently and in future projections. The table below shows these ratios:
Year No of beds Income EBITDARM

FY2017A 53.8% 52.1% 50.7%
YT May 2018A 53.5% 50.7% 47.5%
FY2018F 54.1% 50.7% 47.2%
FY2019B 54.0% 52.2% 51.8%
FY2020B 54.0% 52.4% 52.8%
KF FMT 54.2% 52.4% 51.5%

Investigations 1.21 The extent of enquiries/investigations made is set out in our Terms of Engagement
letter. In carrying out this instruction we have undertaken verbal / web based
enquiries referred to in the relevant sections of this report. We have relied upon this
information as being accurate and complete.
1.22 In summary we are required to state:
● The nature and source of information relied upon in the valuation
● The steps taken to verify that information
Where information provided by the client, or another party, has not been verified, this
is to be stated, together with any comments made to us by those parties in relation to
the information.
Information 1.23 In this report we have been provided with information by the Client, its advisors and
provided other third parties. We have relied upon this information as being materially correct
in all aspects
1.24 In particular, we detail the following:
● Information relating to the addresses of the properties
● Financial Model Cambian v151
● Financial Information Memorandum
● Site by Site location v.06 – Aug
● Ofsted Inspection reports (if available on site or through Ofsted online database
www.gov.uk/government/organisations/ofsted)
● Ofsted registration certificates (if available on site)
● CQC Inspection reports sourced from www.cqc.org.uk
● Lease documentation for the leasehold properties provided via the data room
● Other external due diligence reports prepared in connection with the Transaction
Valuation bases
1.25 In accordance with your instructions, we have provided opinions of value on the
following bases:-
Market Value 1.26 The properties have been valued to Market Value in accordance with the RICS
(MV) Valuation Professional Standards VPS4 paragraph 1.2, relevant provisions of the
Listing Rules and Prospectus Rules issued by the Financial Conduct Authority, Rule
29 of the City Code on Takeovers and Mergers and CESR’s recommendations for
the consistent implementation of the European Commission’s Regulation on
Prospectuses No 809/204 and EU-Directive 2003/71/EC. Market Value is defined
within the standards as:
“The estimated amount for which an asset or liability should exchange on the
valuation date between a willing buyer and a willing seller in an arm’s length
transaction after proper marketing and where the parties had each acted
knowledgeably, prudently and without compulsion.”

Portfolio 1.27 The properties have been valued on the basis that they are sold as a portfolio in a
single lot.
Valuation Date 1.28 The valuation date is 19 September 2018.
2 The Properties
Summary
2.1 The portfolio comprises properties predominantly consisting of children’s homes
(“RCH”) and SEN schools and education facilities (“SCH”). There are also a small
number of other properties including unregistered step down or supported living units
(“SL”), an independent hospital (“IH”), care homes for adults 18-65 (“CH”) and
properties which are closed. The property type split by tenure is set out in the table
below:
Type Freehold Long Leasehold Leasehold Total
RCH 113 12 43 168

SCH 26 - 12 38
IH 1 - - 1
RCH/CH 1 - - 1
CH 3 - - 3
SL 2 - 1 3
CLOSED 7 - 3 10
Total 153 12 59 224
Services
2.2 In accordance with the General Terms of Business, no tests have been undertaken
on any of the services. We have assumed for the purposes of valuation that mains
services of gas, electricity and water are provided to the properties or that oil or
tanked gas supplies are in place. Furthermore, we have assumed that the properties
are connected to mains drainage or have operational private drainage systems in
place.
2.3 Our valuation assumes that the services provided are sufficient for the continued
operation of the businesses carried out at the properties. Should this not be the case
then the values reported herein may be adversely impacted.
2.4 We have assumed for the purpose of valuation that other services such as lifts, fire
alarms and ventilation systems are present where necessary, are in working order
and of sufficient quality to meet regulatory and statutory requirements.

Legal title
Land register 2.5 As stated in our Terms of Engagement, we do not undertake searches or inspections
searches of any kind (including web based searches) for title or price paid information in any
publicly available land registers, including the Land Registry for England & Wales,
Registers of Scotland and Land & Property Services in Northern Ireland.
Sources of 2.6 We have not been provided with any Land Registry entries or Title documents.
Information
2.7 In our valuation, we have assumed a good and marketable title and that all
documentation is satisfactorily drawn.
Covenants 2.8 Unless otherwise informed we have assumed that the properties are not subject to
any unusual or onerous covenants, restrictions, encumbrances or outgoings. We
recommend that your legal advisers are instructed to investigate this matter further.
Rights of way 2.9 Unless otherwise informed we have assumed that there are no rights of way,
wayleaves or easements over the properties which may potentially have a
detrimental impact upon the valuations in this report. Where we have been advised
of a right of way or suspect this to be the case, this has been considered within our
valuation.
Tenancies
Owner occupied 2.10 We are not aware of any staff occupation of the property and nor are we aware of
properties any occupancy restriction or similar limitation affecting the properties.
Lease 2.11 We have been provided with the tenancy information by the Client and have relied on
agreements that information being correct. No additional verification has been undertaken. We
have seen a copy of the occupational leases for 52 of the occupational leases but no
head leases.
NB 2.12 A number of leases are holding over and are therefore valued at Nil due to the lack of
continuing property interest. A number of missing leases are valued at Nil when
potentially they could be liabilities depending on the terms of the tenancy. Further
comment is made in section 4 following.
Condition
Scope of 2.13 We have not undertaken a building or site survey of the properties.
inspection
Comments 2.14 We have assumed that the properties are in sound order and free from structural
faults, rot, infestation or other defects, and that the services are in a satisfactory
condition.
Summary 2.15 Those properties inspected were in general in good or reasonable decorative
condition commensurate with their age and uses. A number of properties were in
excellent condition having been recently refurbished throughout.

Desktop 2.16 We have valued the properties on the assumption that they remain in a similar
assumptions on physical condition and layout as at our last inspection in 2014. In the event there
condition have been material changes to the properties or the nature of the surrounding area
they may be an impact on the values reported herein.
Ground 2.17 We have not been provided with a copy of a ground condition report for the sites.
conditions We have assumed that there are no adverse ground or soil conditions and that the
load bearing qualities of the site are sufficient to support the buildings constructed or
being constructed thereon.
Environmental considerations
Mining 2.18 A number of properties are situated in an area within which historic or current mining
is suspected. Our valuation assumes that these properties are not affected by such
mining, but, in the event that a mining survey (or equivalent) reveals an adverse
position, our valuation could be materially affected.
Flooding 2.19 We have used the website of the Environment Agency’s Indicative Floodplain Maps
to provide a general overview of lands in natural floodplains and therefore potentially
at “Risk of flooding from rivers or the sea”. The maps use the best information
currently available, based on historical flood records and geographical models. They
indicate where flooding from rivers, streams, watercourses or the sea is possible.
The website also indicates whether a property is in a location which benefits from
flood defences.
Contamination 2.20 Investigations into environmental matters would usually be commissioned from
suitably qualified environmental specialists. Knight Frank LLP is not qualified to
undertake scientific investigations of sites or buildings to establish the existence or
otherwise of any environmental contamination, nor do we undertake searches of
public archives to seek evidence of past activities which might identify potential for
contamination.
2.21 Subject to the above, while carrying out our valuation inspection, we have not been
made aware of any uses conducted at the subject property that would give cause for
concern as to possible environmental contamination. Our valuation is provided on
the assumption that the property is unaffected.
Radon 2.22 It is not possible in the course of our inspection/survey to determine whether radon
gas is present in any building, as the gas is colourless and odourless. Tests can be
carried out to assess the level of radon in a building and the minimum testing period
is three months. Where radon gas is discovered, it has been the experience of the
Health Protection Agency that it is not expensive, in proportion to the value of the
property, to effect the recommended remedial measures. We have therefore
disregarded this issue in terms of our valuation.
High voltage 2.23 There is high voltage electrical supply equipment close to a number of properties.
equipment The possible effects of electric and magnetic fields have been the subject of media
coverage, with the result that where there is high-voltage electrical supply equipment
close to the property, there is a risk that public perception may affect marketability

and value. Further comment to be added if value considered to be affected in this
case.
Japanese 2.24 During the course of our inspection we did not note the presence of Japanese
knotweed Knotweed on the site. It is an offence under the Wildlife & Countryside Act 1981 to
allow Japanese Knotweed to grow in the wild. The plant is an aggressive species,
which can crack and break through masonry, brickwork and service media.
Asbestos 2.25 Since 1999, the use within a building of asbestos containing materials (ACMs) has
been banned. These are commonly found although are often in areas not visible
from an inspection of the surface elements. While these can be sealed in place,
public alarm is such that their removal and safe disposal is the more likely course of
action and this can be particularly expensive. Removal and disposal will require
specialist advice. Knight Frank LLP does not specifically inspect for ACMs. Our
valuation assumes that no ACMs are contained within the properties unless noted on
inspection or informed by the CCC. In those properties where asbestos is present we
have assumed that the property owner is meeting his statutory obligations and there
is no adverse effect on value.
Sustainability
Sustainability 2.26 The issue of sustainability is becoming increasingly important to participants in the
property market. There is a general expectation that buildings that minimise
environmental impact through all parts of the building life cycle and focus on
improved health for their occupiers may retain value over a longer term than those
that do not.
2.27 The Government has set itself a target to reduce CO2 emissions by 80% by 2050.
With property representing around 50% of total emissions, the sector has become an
obvious target for legislation. It is likely that, as we move towards 2050, energy
efficiency legislation for property will become increasingly stringent.
EPCs 2.28 All properties within the UK require an Energy Performance Certificate (EPC) when
bought, sold, built or rented. An EPC measures the asset rating of a building in
relation to its energy performance.
2.29 The Energy Efficiency (Private Rented Property) (England and Wales) Regulations
2015, more commonly known as Minimum Energy Efficiency Standards (MEES),
introduces legislation which means that, with effect from 1 April 2018 commercial or
domestic premises which falls beneath an “F or G” energy efficiency rating, it will
become unlawful for them to be leased without energy efficiency improvements
having been made (subject to a number of exclusions and provisos). From 1 April
2023, these regulations will also apply to current leased premises as well as new
lettings (subject to a number of exclusions and provisos). Furthermore, it is
conceivable that the minimum energy efficiency rating could be increased to further
increase energy efficiency standards in property.

2.30 We have searched the national EPC register for each property and where available
have had sight of the relevant document.
2.31 From a value perspective, sustainability is likely to be a long term issue and its
relative importance will change over time. Our valuation provides our opinion of
value at the valuation date based on market related factors at that date.
Statutory Matters
Sources of 2.32 We have been advised that there are no material planning applications outstanding
planning by Cambian. We have endeavoured to confirm this information with the relevant local
information authority via their websites.
2.33 These enquiries should not be taken as personal searches and information on the
relevant website is assumed to be both accurate and up to date. For a formal
planning enquiry to be made, the planning authority will require written representation
which has not been possible as part of our report.
Highways 2.34 We have not made enquiries of the relevant Highways Authority.
2.35 On the grant of planning permission there is a statutory period of 6 weeks within
which an “interested” party can apply, on a point of law only, for a Judicial Review of
the decision to grant permission.
2.36 We have assumed that there are no current highway proposals in the immediate
vicinity likely to have a detrimental effect upon the properties within the foreseeable
future. Furthermore unless otherwise informed we have assumed that all highways
bounding the property are adopted.
Access 2.37 In reporting our opinion of value, we have assumed that there are no third party
interests between the boundaries of the subject properties and the adopted highways
and that accordingly the properties have unfettered vehicular and pedestrian access.
Council Tax & 2.38 Children’s homes are liable for Council Tax and schools are liable for business rates.
Business Rates We have researched the relevant obligations of the properties and in all cases we
have assumed that the relevant liability has been met by the operator.
Registration 2.39 The portfolio comprises registered businesses. The regulatory bodies are
responsible as follows:
● Ofsted (England) (children and schools)
● CQC (England) (Adults 18-65)
● Care Inspectorate Wales
We have not been provided with copies of the registration certificates for each
property despite requesting but have had sight of these in the trading homes and
schools at inspection in most cases and have confirmed registration via the
information provided.

Review of 2.40 Registered care facilities are inspected by the relevant regulator and graded on
Compliance compliance. The most recent compliance review has been considered within our
valuation where made available to us.
Fire safety 2.41 It is a requirement for a fire safety risk assessment to be carried out and for a fire
management plan to be maintained. These requirements, which were introduced in
2006 replace the previous requirement for a Fire Certificate.
2.42 We have not viewed any such documents relating to the properties and have
assumed for the purposes of our valuation that the relevant requirements have been
fully complied with.
Access for 2.43 Disability discrimination legislation provides that the majority of organisations must
disabled make provision for disabled persons to have access to the goods and services they
persons provide. This may require an access audit of the property to be undertaken and for
specific arrangements relating to physical aspects of the building. We have not been
provided with any information in this respect and our valuation has been undertaken
on the assumption that the property is either fully compliant or capable of being made
fully compliant at no significant additional cost with all relevant disability access
requirements.
2.44 We have assumed in our valuation that all regulations have been complied with.
3 Valuation
Methodology
Trading 3.1 The trading properties have been valued having regard to trading potential assuming
Properties that they are well maintained and effectively managed, offer high standards of care
and meet the requirements of their registration where applicable.
Vacant 3.2 The closed down properties have been valued as vacant in their current physical
properties condition subject to existing use. These vary between properties which have been
mothballed and those that have been refurbished and are ready to trade.
Tenanted 3.3 There is a single property, Bellevue let to Golden Lane Housing Limited for a term of
property 60 months from 22 June 2018 at a rent of £1,950 per month. Whilst this is above the
rental value we would expect as a residential property (within use class C3), the
Tenant has a break option on the 3rd anniversary of the term. As a result, whilst we
have considered this in our valuation, we have not attributed a material value to this
income stream over and above the closed down value.
Linked 3.4 There are a number of properties which are linked, either physically or for accounting
properties purposes or by Title. Some these have been valued as one asset whilst others have
been valued separately but the valuation has considered the linked nature of the
assets and the values should be considered as apportionments of the whole.

Trade related 3.5 Care facilities which are owner occupied fall under the category of trade related
property property valuations. RICS Valuation Property Guidance Applications 4 (“VPGA4”) of
the Red Book relates specifically to trade related valuations, goodwill and the general
approach to be adopted for the capital valuation of properties which are normally sold
on the basis of their trading potential. The guidance assumes that the existing use of
the property will continue although where it is clear that a property may have a higher
alternative use value comment should be made.
Reasonably 3.6 The owner operated care facilities trading potential is appraised using the concept of
Efficient a Reasonably Efficient Operator (“REO”), defined in VPGA4 2.10 as:
Operator “A concept where the valuer assumes that the market participants are competent
operators, acting in an efficient manner, of a business conducted on the premises. It
involves estimating the trading potential rather than adopting the actual level of trade
under the existing ownership and it excludes personal goodwill.”
In consequence, if a business is trading below REO and management expectations
and, in the opinion of the valuer, could achieve a higher level of EBITDA (Earnings
before Interest, Tax, Depreciation and Amortisation costs) then the valuer should
reflect this in his composition of Fair Maintainable Turnover (“FMT”) and the resultant
Fair Maintainable Operating Profit (“FMOP”). For example, a REO may be able to
enhance fees, occupation or reduce costs. Conversely, if the business is achieving
EBITDA levels in excess of industry standards the valuer should adjust FMOP
accordingly to reflect levels achievable by a REO.
Operational 3.7 The valuation of property fully equipped as an operational entity and valued having
Entity regard to trading potential usually includes:-
● The legal interest in the land and buildings;
● The trade inventory, usually comprising all trade fixtures, fittings, furniture,
furnishings and equipment; and
● The market’s perception of the trading potential, together with an assumed ability
to obtain/renew existing licences, consents, certificates and permits.
Consumables and stock in trade are normally excluded from the valuation.
Goodwill 3.8 VPGA4 2.9, states that personal goodwill, that is the value of profit generated over
and above market expectations that would be extinguished upon sale of the property,
together with any financial advantages relating specifically to the current operator of
the business, such as taxation, depreciation policy, borrowing costs and capital
invested in the business, should be excluded from the valuation. The valuation does
include the inherent goodwill which attaches to the building and runs with the
property by virtue of circumstances such as its location, design, planning permission,
licence and occupation for its particular use.
Registration 3.9 When properties are sold as fully operational businesses the new owner will normally
expect to renew the licences/consents and take over the benefit of existing
approvals, certificates and permits, together with any contracted future admissions
and the continuing occupation of existing residents which are an important part of the
on-going business. The properties have been valued having regard to their trading

potential, as defined above, as operational concerns and inclusive of trade furniture,
furnishings and equipment. We have therefore assumed that each property will
continue to have the benefit of all necessary licences, fixtures, fittings, furniture,
furnishings and equipment to enable it to remain in full operation as a business
entity.
Purchaser’s 3.10 The valuation figures reflect our opinion of the consideration that would appear in a
Costs hypothetical sale and purchase contract and make no allowance for any acquisition
costs i.e. stamp duty or professional fees in accordance with normal valuation
convention. No allowances were made for vendor’s expenses of realisation or for any
taxation liability arising from the sale of any property.
3.11 In arriving at our FMT, we have had regard to the accounts and budgets provided to
us. We have examined the trading history of the individual units, the current trading
position and any fluctuations in the variables that have had a marked influence on
the profitability of the business.
Central costs 3.12 We have been provided with the central management costs for the accounting
periods provided and forecast going forward. We have considered the other external
due diligence reports prepared in connection with the Transaction, particularly their
analysis of central costs excluding the fostering business which does not form part of
our valuation. Our projected fair maintainable central costs of circa £30.4m are
projected at approximately 17% of the FMT revenue. The central costs have not
been apportioned across the individual assets but considered solely against the
portfolio with no differentiation for different types and categories of care.
Portfolio 3.13 We have made an allowance for a portfolio premium which we believe could be
premium achieved on a portfolio of this scale as at the date of valuation. A portfolio premium
reflects the attractiveness of a good quality portfolio of assets, also recognising
advantages of scale and the impact of the central costs necessarily incurred in their
operation. There are a limited number of platforms of this scale and quality in the
market and there are none currently available to purchase to the best of our
knowledge. However, a number of portfolios have transacted over the last 18
months including Keys Group, Witherslack and Kisimul. We would however caution
that these premiums are difficult to quantify precisely and can be transient so would
suggest that this premium should be considered carefully.
Profits Method 3.14 Our valuation has been undertaken using appropriate valuation methodology and our
professional judgement.
3.15 We have valued the trading properties by reference to the profits method as this is
the basis on which such properties are commonly bought or sold.
Comparative 3.16 In undertaking our valuation of the properties, we have made our assessment on the
method basis of a collation and analysis of appropriate comparable transactions, together
with evidence of demand within the vicinity of the subject property. With the benefit
of such transactions we have then applied these to the property, taking into account
size, location, aspect and other material factors.

Comparable evidence
Comparative 3.17 In arriving at our view on values we have considered information available to us on
method sales of comparable care facilities. It should be noted that the healthcare market
remains relatively opaque from a comparable perspective with many properties and
portfolios sold off market or subject to confidentiality agreements. However, Knight
Frank is regularly involved as agent, adviser or valuer in many of the sector’s leading
portfolio transactions and individual sales, including on-going work for many of the
providers in the elderly markets. Whilst we cannot be explicit on a number of deals
we have been involved with, the intellectual property gleaned from this involvement is
used in assessing the valuation factors attributed.
Valuation considerations
Trading 3.18 The subject properties have been valued having regard to trading potential assuming
Properties that they are well maintained and effectively managed, offer high standards of care
and/or education and meet the requirements of their registration.
Portfolio 3.19 The portfolio premium has been applied. After the deduction for the head office
premium costs the portfolio YP multiplier attributed equates to 11.97x the FMT EBITDA of
£29.159 million.
Realistic 3.20 We are of the opinion that a realistic period of time in order to achieve our opinion of
Marketing and Market Value as a portfolio would be six to twelve months. This view is based on our
Exposure extensive experience of involvement in many of the major transactions in the portfolio
Periods market as well as acting as agents or valuers on individual transactions across the
sector and country.
Valuation bases
Market Value 3.21 Market Value is defined within RICS Valuation - Professional Standards as:
“The estimated amount for which an asset or liability should exchange on the
valuation date between a willing buyer and a willing seller in an arm’s length
transaction after proper marketing and where the parties had each acted
knowledgeably, prudently and without compulsion.”
Valuation date
Valuation date 3.22 The valuation date is 19 September 2018.
Market Value
Assumptions 3.23 Our valuation is necessarily based on a number of assumptions which have been
drawn to your attention in our General Terms of Business, Terms of Engagement
Letter and within this report.
Key 3.24 Whilst we have not provided a summary of all these assumptions here, we would in
assumptions particular draw your attention to a key assumption that:

The properties are all effectively managed, offer high standards of care and meet the
requirements of the relevant regulatory bodies.
Market Value – 3.25 We are of the opinion that the Market Value of the interests in the trading properties
Portfolio Sale on the basis that they are fully equipped as operational entities and valued having
regard to their trading potential, and the interests in the vacant properties assuming
the business is closed, on an aggregate basis, assuming a disposal of the assets as
a portfolio in an orderly marketing process, as at the date of valuation, is
£350,000,000 (Three Hundred and Fifty Million Pounds).
Summary 3.26 A summary of the portfolio valuation is set out in the table below:
Portfolio Valuation
FMT Income £000s 179,098
FMT EBITDAM £000s 59,606
FMT Management Total £000s 30,447
FMT EBITDA £000s 29,159
Portfolio YP 11.97x
Portfolio MV £ 350,000,000
Portfolio MV per bed / place £ 202,312
Apportionment 3.27 A summary of the apportionment of the portfolio value by tenure is set out in the table
by Tenure below. Please note this constitutes an informal apportionment only.
Apportionment by Tenure No of Properties £

Freehold 153 331,501,104
Long Leasehold* 12 7,980,132
Leasehold 59 10,518,764
* A lease with an unexpired term of at least fifty years on which a nominal ground rent is payable
Material Values 3.28 As required under UK Appendix 7.1(m) of the RICS Standards we can confirm that
the Market Value of the portfolio contains three properties, all SEN schools, which
have an apportionment of value exceeding 5% of the total. These are set out below:

Property Tenure Apportionment Apportionment
% £
Grateley House School Freehold 8.06 28,200,833
Southlands School Freehold 6.83 23,918,322
Hill House School Freehold 5.64 19,724,062
4 Property risk analysis
General comments
General 4.1 In this section of our report we summarise the property related risks which we have
comments identified as part of our valuation report and which we consider should be drawn to
your attention. This summary should not be taken to be exhaustive and must be
considered in conjunction with the remainder of the report. Nothing in this section
should be construed as being a recommendation of taking any particular course of
action.
Risks relating to the property

Capital 4.2 We have considered Capex spend on the properties as provided in the financial
Expenditure information received. In valuing the properties inspected we have reflected any
(“Capex”) requirements for further capex apparent to us. Those properties valued on a desktop
basis have been assumed to require no significant capex other than proposed in the
information provided. No significant capital project commitments have been
assumed, including proposals for refurbishment and re-positioning of properties
currently closed.
Condition 4.3 A stated earlier the properties inspected generally appeared to be in a good or
reasonable condition commensurate with their age and use. We have relied upon
the assumption that the condition of the properties valued on a desktop basis is
similar and that the properties remain in a condition suitable for continued operation.
Statutory 4.4 We have not been provided with registration certificates for the majority of the
licences properties and whilst we have verified where possible, the children’s homes have
been assumed to hold the necessary registration to trade as projected in our
valuation. Should this not be the case then the values reported herein may be
adversely affected.
Registration 4.5 A small number of properties are rated Inadequate by the relevant regulator and this
Compliance has the potential to impact on the values reported herein. Historically the Group has
been quick to close or improve inadequate services and this is likely to remain the
case in the sensitive care sector they operate in. In the event a home is rated
Inadequate in the future or unable to make improvements rapidly then it is possible

that business may be closed, albeit often short term, and the trading values
impacted.
Legal title 4.6 Any legal title issues are matters which should be referred to your legal advisers.
Tenure - 4.7 We have not been provided the leases for nine occupational leases and 16 long
leaseholds leasehold properties. As a result we have apportioned no values to the occupational
leases but you should be aware that there is always the potential that these could be
liabilities. However we have been provided with rents due and based on this at the
date of valuation we do not believe this to be the case. In the case of the long
leaseholds we have considered these to be let on peppercorn or nominal ground
rents and to be typical benign head leases. Again in the event this is not the case
then the values reported herein may be impacted.
Income risks
National Living 4.8 The NLW will see pay increased to £9 per hour by 2020. As a result the business will
Wage see wage inflation which could impact on trading potential in the event fee rates do
not increase to offset.
Sleep in care 4.9 Sleep in pay rates remain a contentious and unsettled issue. There remains the
rates potential for this to impact on trading potential across the sector.
Cashflow 4.10 We have relied upon the trading information provided to us by the Client and have
assumed the information to be accurate and reliable. Due to the importance that the
market attaches to trading figures actually achieved, we would comment that in the
event of a future change in the trading potential or actual level of trade from that
indicated by the figures supplied to us, the Market Value could vary. In arriving at
our figure of value, we have taken into account current market conditions. There
may be short term movement in value caused by various factors affecting the general
economy of the property market or care home business outlook.
4.11 This report is based upon our own investigations and such other sources as detailed
in the report, and with relation to cashflow, we make the assumption that the
business shall at all times be managed and operated by a competent and diligent
owner devoting all time and care to the affairs of the business. Although the trading
fortunes of the business may fluctuate our valuation assumes that the trading
position, financial and market situation prevailing at the date of the report shall not
vary during the period of assessment and that the nature, character, extent and
pricing structure of the business shall not materially alter, unless specifically stated to
the contrary in the report.
Economic & property market risks

EU Referendum 4.12 The impact of the UK’s vote to leave the EU may have some implications for health
Comments and social care, not least because it has created a period of significant economic and
political uncertainty at a time when the health and care system is facing some
operational and financial pressures already.

4.13 The EU’s policy of freedom of movement and mutual recognition of professional
qualifications within the EU means that many health and social care professionals
currently working in the UK have come from other EU countries. It is widely
acknowledged that the NHS is currently struggling to recruit and retain permanent
staff.
4.14 Until the UK extracts itself from its obligations under EU treaties, the policy on
freedom of movement remains unchanged. Given the current shortfalls being
experienced by both the health and social care sectors, the government must clarify
its intentions on EU nationals working within health and social roles in the UK. At
present, approximately 6% of social care workers in the UK come from the EU (with
a large weighting towards London (c.12%) and south east (c.10%) and 5% of NHS
staff (80,000 and 55,000 jobs respectively) and as such the government will want to
avoid EU staff currently working in the NHS deciding to leave to work in other
countries.
4.15 The impact on social care of not having enough staff means that potentially, care
homes may need to either, pay higher salaries to attract workers into the sector or
increase the amount of agency staff usage (even more expensive). The impact of
increased staff costs would of course lower net profit margins or lead to cost cuttings
in other key areas.
Valuation risks
Methodology 4.16 You need to be aware that the profits method requires the input of a large amount of
data, which are rarely absolute or precise, together with the making of a large
number of assumptions. Small changes in any of the inputs can cumulatively lead to
a large change in the site value. Some of the inputs can be assessed with
reasonable objectivity, but others require a high degree of professional judgement.
Risks relating to the terms of the instruction

Inspection 4.17 This means that there is a higher than normal degree of uncertainty attached to our
opinion of value and limits the reliance which should be placed upon our report.
Restricted 4.18 Upon your instructions, our valuation has been undertaken within limited timescales.
timescales This means that there is a higher than normal degree of uncertainty attached to our
opinion of value and limits the reliance which should be placed upon our report.

Signature
Reviewed by not undertaken by:

PA Evans, MRICS JM Evans, FRICS
RICS Registered Valuer RICS Registered Valuer
Partner, Healthcare Head of Healthcare
For and on behalf of Knight Frank LLP For and on behalf of Knight Frank LLP


Knight Frank Report

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Knight Frank Report

Uploaded by

Copyright:

Available Formats

Valuation Report

Cambian Group PLC Portfolio

Prepared on behalf of CareTech Holdings PLC &

Date of issue: 19 September 2018

Knight Frank LLP, 55 Baker Street, London W1U 8AN

Portfolio Cambian Group PLC Portfolio.

Tenure Properties are owned freehold, long leasehold or leasehold.

Valuation ● Properties have been valued as a portfolio.

Valuation date 19 September 2018

Valuation Portfolio Market Value: £350,000,000

● A portfolio valuation includes an allowance for a premium or discount over the

4 Property risk analysis 21

Engagement of Knight Frank LLP

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Scope of enquiries & investigations

Year No of beds Income EBITDARM

YT May 2018A 53.5% 50.7% 47.5%

FY2018F 54.1% 50.7% 47.2%

FY2019B 54.0% 52.2% 51.8%

FY2020B 54.0% 52.4% 52.8%

KF FMT 54.2% 52.4% 51.5%

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Type Freehold Long Leasehold Leasehold Total

RCH 113 12 43 168

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

FMT EBITDAM £000s 59,606

FMT Management Total £000s 30,447

FMT EBITDA £000s 29,159

Portfolio MV per bed / place £ 202,312

Apportionment by Tenure No of Properties £

Long Leasehold* 12 7,980,132

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Southlands School Freehold 6.83 23,918,322

Hill House School Freehold 5.64 19,724,062

4 Property risk analysis

Risks relating to the property

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Economic & property market risks

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Risks relating to the terms of the instruction

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

Reviewed by not undertaken by:

Valuation Report │ Cambian Group PLC Portfolio │KF Ref: I:1061510

You might also like