We have hit a valuation peak for skilled nursing facilities, and we do not feel like we are going out on a limb in saying it. That is because soaring interest rates have made acquiring facilities at extremely high prices much more expensive. The realities of a difficult operating environment concerning labor and inflation must also be top of mind for lenders, which are probing deals very deliberately, as they should. Regulatory issues have also made deals tougher, and longer, to close, and delays can be especially costly as the Fed keeps increasing rates.
That being said, we have also heard of more than several cases of renegotiations, final bids coming in lower than the initial bids, and a couple of stories of already-closed transactions where if the seller took their facilities out to market now they would trade for 20% to 25% lower than the final price they got. Those sellers should thank their lucky stars that their deals closed this summer. Others with costly delays in obtaining financing, getting over regulatory hurdles or anything else may be losing sleep.
Headlines from the last year highlighting the soaring SNF prices have gotten into the minds of many sellers, as bid-ask spreads are apparently the widest in recent memory, making closing deals that much more difficult. For those owners of stabilized facilities, they may be thinking “why sell now,” which leaves the owners of struggling facilities who are more desperate to get out. That switch alone will cause the average per-bed price to plummet in the next year.
We expect to still see some high-priced SNF deals in the coming months, as buyer enthusiasm won’t dissipate immediately, and many can use cash or 1031 exchanges to make the math work. And we still want to understand what is going through their minds to pay the prices we were seeing in the last year. It made us wonder if the SNF operating environment is really that bad. We will hope to answer those questions and those of our listeners on our SNF webinar this Thursday at 1pm Eastern. See you then.
