It still may be too early to tell, but according to our rolling-four quarter M&A statistics, it appears that skilled nursing values have started their descent in light of the COVID-19 pandemic. We say it may be too early simply because of how few transactions have been negotiated and closed since the onset of the virus, and we base our statistics on closed transactions, not just announced ones. The rolling-four quarter average also still consists of three quarters of prices that were not affected by the pandemic and that represent a larger share of the past 12 months of deals than normal because of the dearth of deals in Q2:2020.
Nevertheless, the average price for skilled nursing facilities fell 6.5% from $93,000 per bed in 2019 to $87,000 per bed in the four quarters ended June 30. Compared with the previous four-quarter average, the price fell 6.25% from $92,800 per bed. In our conversations with those trying to get deals closed these days, that drop matches up with the estimated decline in facility prices, which has generally fallen between 5% and 10%.
For newer properties in higher income areas, the drop could be around 5%, while older properties that were previously struggling could sell for a 10% or more discount. But, this information has so far been just anecdotal, and far more facilities have to sell (and details of those transactions provided to us!) to get an accurate picture of senior care prices pre- and post-COVID.
One thing that is true is that the perceived risk of owning and operating a skilled nursing facility has certainly gone up in recent months, and so cap rates have followed suit, rising 50 basis points from an average of 12.2% in 2019 to 12.7% in the last four quarters. We would not be surprised if the average ticks up another 50 basis points as the year goes along, especially as lenders maintain their caution and prices likely fall. Still, that spread on top of the 10-year Treasury rate may entice buyers, despite the risks, as well as lenders.
The additional $5 billion sent to SNFs by the Department of Health and Human Services from the Provider Relief Fund could stabilize operations and boost facilities’ bottom lines enough to interest buyers. Owners may also not want to sell while the cash is still coming in. We will see. Stay tuned next week for the change in independent living values.
