Despite numerous headwinds, an aging supply and decreasing national census, skilled nursing facility prices stayed remarkably steady in the past four quarters. In the 12 months ended September 30, 2018, we recorded an average price of $81,900 per bed for skilled nursing sales, up 4% from the previous four-quarter period and up 0.7% from calendar year 2017. We saw more of a change in the average cap rate, which dipped below 12% (a pretty rare occurrence) to 11.9%, which is down from 12.55% in the 12 months ending June 30, 2018 and from 12.3% in 2017.
The average price is still about 20% off from the sector’s record-high average price of about $100,000 per bed in 2016, which begs the question: are we at the bottom? It’s possible (and we held a webinar on that very subject a couple of months ago that you can listen to here), but then why did cap rates fall? After all, borrowing is becoming costlier, and few are suggesting that SNFs have become a less-risky investment in recent months or years.
On the flip side, there is abundant capital in the sector, PDPM (the Patient-Driven Payment Model) goes into effect next year, and those newer, high-acuity, high-quality mix facilities are proving to be stable (and profitable) investments. That should continue to pique investors’ interests.