The capital markets upheaval has led to a decrease in liquidity, an increase in capital costs and a corresponding drop in property values in the senior care M&A market. That combination has led sellers to only make small, strategic divestments because they cannot command the prices they want, and it has prevented buyers from making larger purchases because of expensive debt. So, we have not seen many portfolio deals in 2023.
The majority of portfolio deals that have been announced in 2023 so far have been in the skilled nursing sector, with over 70% of properties included in the year’s portfolio deals being skilled nursing facilities. The sector has proven more resilient in terms of valuation, which helps motivate sellers to dispense of larger portfolios. Also, deep-pocketed buyers have seen great value in scaling up their SNF portfolios and associated ancillary businesses in the face of capital markets shocks.
The enthusiasm may not be what it was six months or a year ago, nor the sky-high SNF prices, but one of the largest deals of the year, in terms of properties, was just announced by Strawberry Fields REIT. One of those “deep-pocketed buyers,” the REIT entered into a purchase and sale agreement to buy 19 skilled nursing facilities and five assisted living communities in Indiana. The SNFs comprise 1,659 licensed beds, while the assisted living communities feature 193 beds, 29 of which are licensed.
Strawberry Fields REIT will pay $102 million, or $55,100 per bed, for the portfolio and expects to fund the deal with its current working capital and funds provided by a third-party lender. The company expects the deal to close in August 2023. The facilities are currently leased under a master lease agreement to a group of tenants affiliated with two of the company’s Directors, Moishe Gubin and Michael Blisko. Under the master lease, the tenants pay annual first year rent of $9.5 million, on a triple-net basis.
The seller was not disclosed, but at the end of 2022, a joint venture ownership group engaged Blueprint Healthcare Real Estate Advisors to find a long-term replacement tenant for the same portfolio, with the addition of four more assisted living communities. In that process, a Midwest-focused operator was ultimately selected.
