It’s no surprise that as a community’s expense ratio declines, its value increases. As such, there was a near-perfect correlation between the expense ratio and the average price per unit paid in the seniors housing market in 2016 (including independent living and assisted living communities), according to the The Senior Care Acquisition Report. The best-operating communities with expense ratios under 65% were valued on average at $298,100 per unit, way up from the $256,100 per unit recorded in 2015. Both years were still heavily influenced by high-quality independent living sales.
Meanwhile, the grouping with a 65% to 69% expense ratio fell in value year over year, from $193,000 per unit in 2015 to $180,800 per unit in 2016. Properties reporting an expense ratio of 70% to 75% were priced higher than those with 65% to 69% ratios, increasing from $172,900 per unit to $189,100 per unit. The growing number of memory care communities sold may have impacted that discrepancy, as they operate at a lower margin than pure assisted living, but typically sell at higher prices per unit as a result of higher cash flow. Finally, the communities with expense ratios above 75% also increased in value compared with 2015, rising from $86,300 per unit to $102,100 per unit. Some of those may be new communities still in lease-up, which a buyer can somewhat overlook if the promise of full occupancy and a normal operating margin is potentially just around the corner.
