The surge in capital costs has finally eaten into the price per bed for skilled nursing facilities, at least according to our latest averages. Using data from our proprietary M&A database which includes dozens of confidential prices and property financials, the average price per bed for skilled nursing facilities in the four quarters ended June 2023 dropped 6.5% to $106,800 from its record-high of $114,200 per bed from calendar year 2022. Anecdotally, we had heard that buyers were not paying the prices they were in 2022 but that investor interest (and prices as a result) was still higher than it was before and during the pandemic. That checks out with our numbers, since the latest four-quarter average surpasses all other years prior.
Relative to the other senior care sectors, skilled nursing’s values have been incredibly resilient to the capital markets upheaval because ownership has more tools at their disposal to quickly improve operations at a SNF, and they can wrap around related ancillary businesses for additional revenue. But we do wonder how many of the high-priced sales from 2021 and 2022 that were financed with high-leverage, floating-rate loans when interest rates were low are faring now. A few months ago, we heard that lenders were pulling back from even the SNF M&A market, or at least pushing back on pricing, so we expect the per-bed price to steadily decline. The operating risks, let alone the capital costs, are just too high to justify that kind of basis.
