With all the media attention on financial problems within the skilled nursing sector (and we are guilty of this as well), there are some companies which are doing okay in this environment. One is National HealthCare Corporation, a publicly traded company that keeps very quiet but, with a market cap of $989 million, is one of the largest public senior care companies.
For the three months ended September 30, 2017, its average Medicare rate has increased by $6.00 to $459.63 year over year, while its Medicare patient days increased marginally. Meanwhile, it managed care average daily rate (which we assume to be mostly Medicare Advantage) remained flat while the total managed care patient days shot up by nearly 18% to 4.327 for the third quarter. The Medicaid census also rose, but the average Medicaid rate increased 2.8% year over year to $179.08. All in all, including private pay, year over year the average daily rate increased 2.6% and the number of patient days increased 2.3%. Not a home run, but given what is happening elsewhere, not too shabby. Now, the company’s NOI did drop sequentially and year over year, so they have not been immune to the higher costs facing everyone.
One of the keys to the company’s continued financial success has been its capital structure. The company operates with a 14% EBITDAR margin, and its rent plus interest expense is just 4.7% of revenues. This compares with HCR ManorCare with just the full rent payable representing 12.8% of revenues, and Genesis HealthCare with rent and interest combined at 12.4% of revenues. When average EBITDAR margins are in the 8% to 14% range, it is easy to see why some companies are having a tough go of it when their average daily census and rates are declining.
The current financial problems besetting some of the larger SNF operators, public and private, will be partly cured when they “normalize” their capital structures. But, and this is a big but, they will have to perform operationally, and that has been difficult for some with such a competitive labor market in a very difficult business. That said, companies such as NHC and some smaller private companies seem to be holding their own, at least for now.