Exclusive: Ex-Southern Cross duo's leaseback link

By This Is Money
Updated: 04:12 EDT, 13 June 2011

Two former Southern Cross bosses are involved with a property firm that undertook controversial sale-and-leaseback deals with the care homes operator of the same kind that brought it to its knees.

Damning: A protest against former Southern Cross Healthcare owner Blackstone

Former chief executive Philip Scott made £11.1m when he sold his entire holding of Southern Cross shares at the top of the market in late 2007.

And the Daily Mail can now reveal he has since become a 31.67% 'passive investor' in Zest, a property company that owns the leaseholds on four Southern Cross properties.

Graham Sizer, the former chief finance officer who made £7.9m selling his shares, is a director of Zest and also has a 31.67% stake.

Zest's accounts reveal that while neither has yet been paid by the company, shareholders including Scott and Sizer stand to share in loan repayments worth £4.5m.

The news comes as landlords, who are owed some £5.8bn in rent between them, prepare to meet today to discuss plans to take control of some of Southern Cross' homes, after it imposed a 30% rent reduction on them.

Landlords are expected to lay claim to around half of the homes, with Bupa, Four Seasons and Bondcare expected to take control of the homes to which they hold the leases.

Scott, a former male nurse from Belfast, left the company after six years at the helm in January 2008, at the same time as Sizer also departed.

Southern Cross is now on the brink of ruin as it is unable to pay its £250m a year rent bill to landlords, including Zest.

Its downfall has been blamed on the sale-and-leaseback model adopted by management and former private equity owner Blackstone, which has gleaned big profits from the group.

It made around £1bn through two transactions: the float of Southern Cross on the stock market in 2006 after just two years of ownership and its sale of the care group's main landlord, NHP, to Royal Bank of Scotland.

NHP is also on the edge of financial disaster after having its £1bn of debt downgraded to junk by leading credit agency Standard & Poor's on Friday.

Scott went on to become chief executive of celebrity rehab clinic The Priory Group which was sold earlier this year by Royal Bank of Scotland for £925m to private equity firm Advent.

He was personally involved in a series of sale and leaseback deals with that company, through Zest and another firm, Sistine Properties, co-owned with his wife.

Scott earlier this month told the press he believed Southern Cross should be allowed to fail and that the current board must share the blame for its plight.

The company's fate now rests in the hands of its landlords, including wealthy property baron Nick Leslau, the multi-millionaire and part-owner of Saracens rugby club.